Every time a politician makes a statement, it’s a good idea to check the facts yourself. With the current state of the economy and federal budget, there is a lot of talk about taxes and who pays them. You may hear a statistic used by a political commentator or politician that says almost one-half of all Americans do not pay taxes and contribute nothing to the running of government. Well, it is time to do some fact checking on that claim, because it is simply not true.
It is true that in 2011, 46% of households were estimated to have not paid federal income tax for the year. When taken out of context, that statement seems to imply that millions of Americans are not paying any taxes and taking advantage of the system. A closer look at the numbers is required to further understand the issue.
Of those households who did not pay federal income tax, approximately 61% are working people who pay payroll taxes and, in some cases, state income taxes. A family of four making less than about $26,000 per year can take the standard deduction and personal exemptions on their tax return and it reduces their tax liability to zero. Everyone has access to these deductions and exemptions. Only those individuals with larger, itemized deductions choose not to apply the standard deduction to their returns. No taxpayer is taxed on the same initial amount of income. In other words, any family of four, whether their income is $50,000, $100,000, or $10,000,000, pays no taxes on that first $26,000 in income.
Approximately 22% of those who do not pay federal income tax are elderly and benefit from various tax provisions designed to assist senior citizens. What this usually means is that the amount of social security received by these seniors is too small to be taxed.
The remaining 17% includes a mix of students, disabled, long-term unemployed, and low-income households with children.
Those who do not pay federal income taxes in a given year are paying taxes in a number of different ways, including federal payroll taxes and state and local taxes. This would include sales tax, property tax, and fuel tax, just to name a few. In fact, the percentage of income paid in taxes by lower income households is higher than those who earn more than them since most of their money is spent on goods and services.
It should be our goal as a society to have more households paying federal income taxes, because that would mean we would have less households with such low incomes. However, the path to achieve this goal is not to simply start taxing the low-income, elderly, and poor households in our country to increase the percentage paying federal income tax. The working poor and disabled are not to blame for the government’s revenue shortfalls. It is critical that we understand the facts on these tax issues before making policies that would have serious and dire impact on our poor and elderly.
For more information, please read the Center on Budget and Policy Priorities summary of this issue at http://www.cbpp.org/cms/?fa=view&id=3505.