Hot Topic (1/20): Are you one of the 43% of Americans who pays no federal income taxes?

[Cafe GroupAdmin]

The Income Tax System is Broken
43 Percent Of Americans Pay No Federal Income Tax, A Sign That Something's Wrong, Writes Declan McCullagh

(CBS)  On April 15, don't be surprised if the line at your local post office is a bit shorter than usual. That's because your neighbors may not be paying any income taxes this year.

An astonishing 43.4 percent of Americans now pay zero or negative federal income taxes. The number of single or jointly-filing "taxpayers" - the word must be applied sparingly - who pay no taxes or receive government handouts has reached 65.6 million, out of a total of 151 million.

Those numbers come from an analysis published yesterday by the Tax Policy Center, a joint project of the Urban Institute and Brookings Institution. Neither is a low-tax or conservative advocacy group; the Urban Institute was created under the Johnson administration during the Great Society era, and it receives most of its funding from the federal government.

"You've got a larger and larger share of people paying less and less for the services provided by the federal government," says Roberton Williams, a senior fellow at the Tax Policy Center. "The concern is that the majority can say, 'Let's have more benefits, spend more,' if they're not paying for it. It's 'free.' That's not a good thing to have."

By historic standards, today's situation is an aberration. Between 1950 and 1990, the number of owe-no-money federal tax returns averaged 21 percent, dipping to 18 percent in 1986, according to Tax Foundation data. In the 1990s, the owe-no-money percentage hovered around 25 percent of taxpayers.

But then politicians began another round of tinkering with the tax code, adding reams of new pages to an already incomprehensible set of rules that even the guy overseeing the IRS can't seem to figure out.

Democrats wanted to lower taxes on the least affluent, while Republicans wanted to lower taxes on everyone. The result was bipartisan enthusiasm for tax credits aimed at everything from children (1997) and college students (1997) to hybrid cars (2005) and homebuyers (2009). Many of these credits dole out cash to people even if they report no income, making them mere government handouts.

"There's no difference at all in terms of the effects on the federal deficit," says Williams of the Tax Policy Center. "It's perfectly equivalent. It's just easier to say, 'I cut your taxes' as opposed to 'I created a new federal program to send money to people.'"

I'm talking here about federal income taxes, not other taxes like Social Security, Medicare, state income taxes, sales taxes, or car registration taxes, some of which are extracted through payroll deductions. The owe-no-money crowd tends to get hit by at least some of those.

The perils of today's situation should be obvious. The United States is close to a tipping point - where most people can skip the post office run on April 15 to mail a check because they're expecting one from the government instead.

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Your thoughts?

Is it fair that so many Americans pay no federal income tax?

How can we fix the income tax system?

[LauraKW]

We pay taxes - lots and lots of taxes.  But I truly don't mind because I like driving on roads without potholes the size of cars.

[tericared]

 I have been unable to work since 1992....... and when my 20 year old got her tax papers today in the mail I was really surprised that no Federal Taxes were taken from her checks....Sure she only worked a little over a month and with very little hours barely made gas money. But I worked from the time I was 15 until I broke my back in 92' and always had Fed taken out...I just dont understand how people can work receive pay and then everyone still receive the same things that are paid for with Federal Taxes when so many dont pay those taxes....

[Arroree]

Im a SAHM so nope i dont pay taxes, but my hubby pays tons in taxes.

[iluv2meow]

Hubby runs his own business and so do I, so ya we have to pay excessive taxes (so they can kill American jobs for corporations) and then some.

[briarraindancer]

We're pretty low income, and I was aghast when I discovered that we paid no federal taxes this year. I break out into a cold sweat every time I think about it, because there's nothing that says the government can't change its mind come April. Even when we were classified in a middle income bracket, we got almost all of our taxes back.

I don't mind paying taxes, though--and with the current deficit over twelve trillion dollars, every little bit would help. The economy sure could use it.

[eaglemama2]

 My first thought when I read the title of the post was, where do I sign up, lol.

Your thoughts? wow

Is it fair that so many Americans pay no federal income tax?  not really....with that said it seems that many fall through the cracks.   If there are Federal taxes, everyone (who works) should pay up.

How can we fix the income tax system?  In a perfect world, taxes should only be paid where you reside, for example if you live and work in CO, you should only have to pay the state, not Federal.      Introduce one flat % for all across the board.    In the country I grew up in there was a 7% flat tax, regardless of income.   

 

 

[acrogodess]

Should just be one number straight across the board. If you work, you pay taxes. Simple as that and you shouldn't be able to claim tax credts without having paid taxes. We've made less the 9 grand combined and we still paid something in federal taxes. I argued with my job when I noticed I wasn't being taxed federally.

[LuvNMyBbs]

We pay state taxes but not federal taxes.  Obviously we do pay, we just get it all back.  Rather than the overly complicated system we have now I would prefer to see a flat tax system, to include automatic tax breaks, such as for homeowners.  I do believe businesses should be taxed on their profits.  I also think there needs to be a substancial luxury tax on items like high end cars (think Hummers and anything $50,000+), alchohol, tobacco, and gambling.  In the instance of liquor and the like part of that money should go to rehabilitation programs and education.

[home-sweet-home]

We pay state tax, property tax and sales tax. We never have a tax liability and we get a good amount back because we have so many children and don't make much money. I have to pay self employment tax, which is about $300.

In 2008 we got the adoption tax cedit which is 11,000 and rolls over for 5 years. We will get two more this year when the Russian girls adoption finalized. So we will not have a tax liablilty for at least 5 more years, so even when I start working as a midwife next year, I won't have to pay in. After that I am sure I will because I will be making so much more.

[katy_kay]

I'd be interested in knowing who wrote the column as he puts the first person into it so there is clearly a slant to how this information was presented. 

My thoughts are that with a government acknowledged unemployment rate of 10% and an unrecognized number hovering around 17% the very real issue is that people are either not working or have had to take such a drastic cut in pay that they are struggling to get by. 

Many will advocate a flat tax ("Fair" Tax) but that is an extremely regressive program that would further hit and impact those that are least able to pay and is far from "Fair". 

Yes, we pay taxes and I'm ok with a program that recognizes that people that least can afford to shouldn't.