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

October 25, 2012

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.


Congress Rejects Estate Tax Cuts

May 3, 2009

As you’ve probably read, Congress has adopted a final budget resolution, which resolves differences between the versions the House and Senate earlier passed. The estate tax cuts in the Senate version didn’t survive the negotiations.

The resolution instead would lock in the current estate tax exemption–a hefty $7 million for a couple. The exemption would be indexed for inflation. So the exempt amount, though not its real value, would increase annually.

This is good news for those of us who would like to see tax benefits focused on low-income workers and revenues available for programs that serve their needs. But it’s not quite the end of the story.

After all, the budget resolution isn’t the budget. It’s just a framework for the separate spending and tax bills that the House and Senate committees will develop in months to come, plus instructions for certain legislative changes. So we’re bound to hear more about endangered small businesses in months to come.

But advocates of a further estate tax rollback will have a tough time–at least in the House–because even the extension in the budget resolution will have to be “paid for” by spending cuts or tax increases.

It’s doubtful the House Democratic majority will try to pay for a tax cut that would benefit only the very wealthiest families when the alternative could be extending the recent tax cut for workers–or, for that matter, several due-to-expire benefits for middle-income taxpayers.

But the Senate isn’t committed to the pay-as-you-go principle, i.e., the need to offset tax cuts and new spending so that they don’t increase the deficit. A critical mass of Senate Democrats bought into the estate tax giveaway once. They just might do it again.