Who Are Those Folks Who Don’t Pay Federal Income Taxes?

You recall, I’m sure, the 47% of Americans who don’t pay income tax and thus can’t be persuaded to “take personal responsibility and care for themselves.”

Romney’s since said his statement was “completely wrong” — undoubtedly referring to the part that wrote all these people off because the part about 47% not paying federal income taxes is basically correct. Or would be if we substitute “households” for “people.”

The Center on Budget and Policy Priorities dug into data from a Census survey and the Tax Policy Center to find out who they are.

Not surprisingly, 22% of the non-payers are elderly — many of them presumably former low-wage workers now trying to get by on Social Security benefits or very elderly people who now rely on Social Security because they’ve exhausted whatever they had in retirement savings.

But the tax code gives seniors some special preferences. Their standard deduction is higher, for example. And all or some portion of their Social Security benefits may be tax-exempt.

These preferences, plus a credit for those with low incomes help explain why so many elderly filers wind up not owing anything.

Another 17% of the non-payers are students, people who aren’t working because they’re too sick or too severely disabled and some heterogeneous others, e.g., jobless workers, those who retired early (maybe because they couldn’t find jobs.)

Which leaves a surprising 61% who are working, as indicated by the fact that they pay, through deductions, the taxes that go to Social Security and Medicare.

About half of these people don’t pay federal income taxes simply because they don’t earn enough. The standard deduction, plus however many personal exemptions they’re entitled to brings their taxable income down to zero, as Roberton Williams at the Tax Policy Center explains.

Another 30.4% of working families, especially those with children don’t owe federal income taxes because the Earned Income Tax Credit, the Child Tax Credit and, in some cases, the Child and Dependent Care Tax Credit wipe out whatever tax they’d otherwise owe.

I personally have some difficulty understanding why I should be able to claim a higher standard deduction just because I’ve managed to live past the age of 65.

The tax breaks for working families are an altogether different story.

Anyone, I think, can understand why federal policymakers — Republicans as well as Democrats — decided to give low-income parents an incentive to work instead of relying on welfare benefits.

Also why they expanded the incentives when they ended welfare as we knew it, putting time limits on the benefits and setting the stage for the extraordinarily low level of support they now provide.

What’s difficult for me to understand is why Congressional Republicans — and apparently Romney as well — want to let the EITC and Child Tax Credit revert to their narrower pre-Recovery Act forms.

These, after all, are tax preferences that support core bipartisan values — work, marriage, child rearing, etc.

They also, in and of themselves, reduce the official poverty rate, as CBPP’s analysis of the 2010 Census figures shows.

If their end result is some 11.5 million or so working families owing no federal income taxes, that’s mainly because our policymakers prefer spending through the tax code rather than directly, as outlays in the annual budget.

Has nothing whatever to do with defects in personal responsibility — or, it seems, lead to solid support for the President, though some might say it would if the 47% voted their enlightened self-interest.

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3 Responses to Who Are Those Folks Who Don’t Pay Federal Income Taxes?

  1. andystaxes says:

    EITC doesn’t promote family values no matter what side of the political spectrum you’re on. The Tax Foundation reports that 61% of all tax filers are unmarried. Because of EITC, those who are not married (family values) are encouraged NOT to do so. Example: a woman whose adjusted gross is $20K a year sharing two kids with some guy whose adjusted gross is $50K a year, but NOT married to him, AND has the kids on her return qualifies for EIC and most likely gets somewhere near the maximum amount ($5112 for 2011). Additionally all of her federal income taxes paid in during the year will be returned to her. If she marries the guy, that puts them FAR over the income threshold for receiving EIC…bye bye 5 grand. This is all too often the case out here in California, so I’d like to know the definition of “poverty”….has a wide meaning these days.

    Not only that but apparently the IRS estimates that 23-28% of all EIC returns are fraudulent. So now….we preparers are the police and will be charged a $500 penalty if EIC returns are not done according to specifications. Sorry…but I don’t see how tax fraud is MY problem. I didn’t go to fake ID school. The result of this is preparers are weighing their options…..raise rates on all EIC clients, kick them all to the curb, refuse to do them at all, or refuse to do them unless they pay $500 for the return.

    The IRS will have an interesting tax season this coming year. My guess is EICers will be appearing en masse on their doorstep this tax season.

  2. Kathryn Baer says:

    You’re right. There is a marriage penalty built into the EITC. The point I was making is that the Recovery Act mitigated the penalty and that Republicans don’t want to extend the tax credit in this form. Similarly, they want the refundable Child Tax Credit to revert to its pre-Recovery Act form. This would significantly reduce the benefit for low-income families—and altogether deny it to some.

    Claiming the EITC is complicated, as you know well. The figures you’re citing are the estimated error rate, not the fraud rate. I understand that IRS is leaning on tax preparers like yourself. I rather doubt that you would be penalized if you accepted documentation that looked genuine, but wasn’t. Still, you’ve got the burden of keeping copies of the documents to protect yourself.

    Perhaps there’s an opportunity for tax reform here?

  3. andystaxes says:

    According to Dianne Feinstein’s form letter she will “express concerns to Congress” or something to that effect. Regardless, with the shrinking middle-class…error rate….fraud rate…..what’s the difference? No one wants to be stuck supporting people who are purportedly “poor”. There’s such a thing as personal responsibility. Looked genuine? Couldn’t we ALL make that excuse? Like I said, we didn’t go to fake ID school. Not that I care what anyone does, but anybody who’s reproductive age in this day and age has had more than ample access to birth control. If they want to design their life in whatever fashion…their business entirely….I don’t want to be penalized. I’m not the police or social welfare department. And quite frankly….I just plain old-fashioned….don’t….f***ing….care. I told Obama on my2k that everyone is a special interest nowadays. We simply live in a whiny America. Reform? Unlikely. Unless the current political expletive-deleteds that are now in Congress get scared they won’t get re-elected. If they really want the public at large to support EIC and ACTC then they need to redirect these payments to utilities, medical, food cards, well-baby care……..people don’t want to pay for Gucci bags and weekend holidays. Sorry…but there are plenty of people who walk out of offices with $10,000 checks between EIC, returned fed income taxes, ACTC and five dependents (all with different last names) and jump in $50K autos, section 8 housing and food stamps. To me, that spells fraud…or at best…the government stealing money from the taxpayers. There are also others who ask their preparers, “Should I tell my boss to gimme that raise or forget about it? Cuz I don’t want my EIC affected.” To me, that spells laziness. I will no longer do EIC or ACTC based on the professional and moral principle that I will not be charged $500 because others commit a crime or shortchange myself because of the additional time it takes to store all of the proper info for these people.

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