45% don't owe U.S. income tax. These households will pay NO Federal Income Tax in 2010.

CNN Money ^ | 04/17/2011 | Jeanne Sahadi

[SeekAndFind]

The fastest way to make the tax-averse incensed is to tell them that nearly half of U.S. households end up owing no federal income tax when all is said and done.

But like most statistics, it is often misunderstood -- and, in the case of those trying to stir political outrage, misrepresented.

For tax year 2010, roughly 45% of households, or about 69 million, will end up owing nothing in federal income tax, according to estimates by the nonpartisan Tax Policy Center. Some in that group will even end up getting paid money from the federal government.

That does not mean such households end up paying no taxes whatsoever. For instance, those in the group still pay other taxes such as state and local income taxes, as well as property and sales taxes.

And the group doesn't necessarily get off scot-free when it comes to payroll taxes -- which support Social Security and Medicare.

More than two-thirds -- or 49 million of the 69 million households -- pay payroll tax. Of those, 34 million end up paying more in payroll taxes than they get back on their federal return. The other 15 million pay payroll tax but they get enough refundable credits to offset what they paid.

Contrary to what many assume, membership in the group isn't restricted to the poor.

It's true that the vast majority of the 69 million households make less than $50,000 -- with very heavy representation among households making less than $30,000.

But nearly 5 million households in the group make somewhere between $50,000 and more than $1 million.

Very high-income households can fall into the non-payer group if they get their income from tax-exempt bonds or overseas sources for which they get foreign tax credits, according to Roberton Williams,

[Minn]

Thus, anyone paying EXCLUSIVELY payroll taxes and no income taxes is, for the most part (ignoring the trivial amounts of federal taxes collected through excise taxes on cigarettes, liquor etc.) making NO contribution to the costs of national defense, the criminal justice system or other legitimate government activities. Consequently, everyone else is paying more than their “fair share” for these activities.

Claiming that payroll taxes just get mingled with income taxes in one big pot I believe obscures this important point

Since you acknowledge that payroll taxes have been diverted into the general budget and replaced with worthless notes, how does the fact that their is no longer a surplus to steal change anything? Money is fungible, and accounting gimmicks don't change that. The people paying exclusively payroll taxes to support current recipients, that are destined to get stiffed when their time comes to collect, are still contributing. Are they not?

Unlike you, I believe that any attempts to draw lines and distinctions between SS and the rest of the federal budget just cloud the issue, rather than clarify it. It is all the federal government taking significant portions of everybody's income to support an ever metastasizing regime of transfer payments. It doesn't matter if the money comes from the income taxes of Bill Gates or the Payroll taxes of low earners. And it doesn't matter if the payments are going to retirees, to food stamps, or General Electric to build wind turbines. It's all the same.

[MV=PY]

We should have a basement level of income tax if we have an income tax at all. 5% so they can do their patriotic duty.

Even better, a "sales tax" AND no income tax.

Everyone must pay if anyone does. Amen FRiend. Everyone should have skin in the game. Or no vote.

[central_va]

So 45% have no skin in the game.

When the dollar finishes crashing, I think it has already started, the lower incomes will be hardest hit. $50,000/yr will be what wal-mart greeters get when milk is $10.50 a gal, gas $7.00/gal.

[krb]

When I see us whining about what other people owe in taxes, I gotta point out: we're being played, folks.

I can not stress that enough.

Read this guy's thesis, and decide if it's pap:

Part 1
Part 2
Part 3
Part 4

I won't post it here, because this guy's absolutism is too strong for this place.

But I am not yet convinced that he's not onto something.

[blondee123]

Social Security is taxed.

[DrC]

“The people paying exclusively payroll taxes to support current recipients, that are destined to get stiffed when their time comes to collect, are still contributing. Are they not?”

I think you’ve confused 2 issues. I concur that current payroll taxpayers may not get what they were promised from SS and Medicare. But that’s completely irrelevant in determining whether they make a contribution to national defense. It doesn’t change the fact that every penny they DO pay only goes to supporting SS and Medicare.

Imagine, for a moment, that we didn’t face a demographic crisis and that the number of workers to elderly remained stable decade after decade. In that instance, every generation could receive the same benefits as their parents and grandparents. In that case, current payroll taxpayers wouldn’t be shafted once it came time to collect benefits. But so long as program payouts exceed payroll taxes by even $1, it means that all the revenue being raised is going exclusively to fund SS and Medicare. There is no “surplus” to be raided to bankroll national defense. So whatever amount we spend on national defense is implicitly being borne only by the subset of the population paying income taxes.

Think of it this way. Jack and Jill are married, but Jack has a legal obligation to pay X dollars a month in child support to his ex-wife. If Jack’s net pay after taxes is less than X, I hope you can concur Jack is making NO contribution towards that couple’s mortgage, food expenses or any other component of the family budget even if all of these items is being bankrolled by the couple’s joint income. I hope you can see why Jill might not regard that arrangement as particularly fair.

[MV=PY]

I thought I recognized the name, thanks.

Strong stuff, on the edge.

[stylin19a]

somethings not right with some figures somewhere.

The total is approx 68 million.

Only 45.4% of the U.S. population had jobs in 2010.
Population is approx. 300 million.
45.4 % is 136,200 and there's only 68 million tax filers ?
and unemployment is only 8.8 % ?

I'm sure I'm missing something....

[Little Pig]

300 million includes a lot of children too. Figure somewhere around 150 million working (and therefore allegedly tax-paying) adults.

[ding_dong_daddy_from_dumas]

For tax year 2010, roughly 45% of households, or about 69 million, will end up owing nothing in federal income tax....

Does that mean that, after they subtract the amount withheld for income tax, they "end up owing nothing?"

Or does it mean that their income tax is actually zero, and they get back all the money withheld in their refunds?

More than two-thirds -- or 49 million of the 69 million households -- pay payroll tax. Of those, 34 million end up paying more in payroll taxes than they get back on their federal return. The other 15 million pay payroll tax but they get enough refundable credits to offset what they paid. (Get a 'receipt' for your taxes)

Sounds like the title is misleading. If they withheld $5000 from your pay and you got $3000 in a refund, you still paid $2000 tax. Sounds like about half of the 45% actually did pay some income tax.

[PA Engineer]

It’s ok, I paid enough for 3 or so households this year...

Ditto +++

[NTHockey]

This is the first time in 45 years that I had no federal income tax liability. I chose to retire rather than give the immoral regime in Versailles on the Potomac any money to fund abortions. Does that make me any less a patriot? I don’t think so.

I still struggle to pay my bills, but I took a stand and I’ll abide by it.

[sickoflibs]

RE :” For tax year 2010, roughly 45% of households, or about 69 million, will end up owing nothing in federal income tax.... Does that mean that, after they subtract the amount withheld for income tax, they “end up owing nothing?” Or does it mean that their income tax is actually zero, and they get back all the money withheld in their refunds? “

It means they pay no federal income tax at all. If any money is withhold they get it back, and possibly more for tax credits.

RE: “ More than two-thirds — or 49 million of the 69 million households — pay payroll tax. Of those, 34 million end up paying more in payroll taxes than they get back on their federal return. The other 15 million pay payroll tax but they get enough refundable credits to offset what they paid. (Get a ‘receipt’ for your taxes).....Sounds like the title is misleading. If they withheld $5000 from your pay and you got $3000 in a refund, you still paid $2000 tax. Sounds like about half of the 45% actually did pay some income tax. ”

It is common now to call FICA/SS and medicare payroll taxes : ‘payroll’ taxes, especially by Democrats, . That is what he is talking about, not Federal income tax with-holding. These are the taxes that will entitle them to SS and medicare, and they do not even cover those two programs(SS/FICA taxes got cut a few months ago.) . They pay no Federal income taxes that go to medicaid, public education, wars(defense spending), green energy programs, , public school teachers, etc. But look at polls that ask about the option of congress cutting these programs or taxing the rich. You can tell which ones they pick.

As long as voters can vote for federal stuff that they dont have to pay for, Democrats will aways have the edge. They call this freeloading “ paying your fair share ” or “ investing in the future ”. If these Americans were overtaxed they would be worried about Federal spending not asking for more.

One discussion we will never hear in Washington is “ You cant be paying your fair share if you are paying nothing, ”

[bobzeetwin]

That number would be reduced considerably by passing the Fair Tax Act(HR25/S13). The Fair Tax will replace all federal income taxes with a national sales tax and abolish the IRS!

I have not read anything about that bill. Does it have a provision for expense deductions?

[Defend Liberty]

I have not read anything about that bill. Does it have a provision for expense deductions?

There are no deductions against income. The Fair Tax is a consumption tax. You pay the tax at the point of sale for new items. The Fair Tax does not tax twice. Used items will not be taxed since the tax has already been collected. People will also be issued a monthly prebate check to cover the tax on necessities up to the poverty level.

You can read more about The Fair Tax at www.fairtax.org

[ding_dong_daddy_from_dumas]

It is common now to call FICA/SS and medicare payroll taxes : ‘payroll’ taxes, especially by Democrats, . That is what he is talking about, not Federal income tax with-holding.

In that case, it is a poorly written article (although taxes are hideously complex, by design). The legal definition of "payroll tax" is "Payroll taxes are the state and federal taxes that you, as an employer, are required to withhold and/or to pay on behalf of your employees." That includes state taxes.

But now that I read the article again, I think you are right. The author kept using expressions like "nearly half of U.S. households end up owing no federal income tax when all is said and done." "End up?" Sounds like line line 76 of form 1040, "Amount you owe," which, even if zero, does not mean you have not paid any income tax, because that is after they subtract withholding, etc.

But finally, more than halfway through the article, she finally uses the more precise term, "Tax liability." Whew! Just talking about taxes makes me tired!

[ding_dong_daddy_from_dumas]

The Fair Tax does not tax twice.

I'll bet that, if anything like it ever passed, after congress got through with it, what they would call "Fair Tax" would include double taxing, and that might not be the worst thing about it.

[sickoflibs]

RE :”It is common now to call FICA/SS and medicare payroll taxes : ‘payroll’ taxes, especially by Democrats, . That is what he is talking about, not Federal income tax with-holding..... In that case, it is a poorly written article (although taxes are hideously complex, by design). The legal definition of “payroll tax” is “Payroll taxes are the state and federal taxes that you, as an employer, are required to withhold and/or to pay on behalf of your employees.” That includes state taxes.”

No it's not. It's purposefully written that way to deceive you.

I have been complaining about this subject for years, wrote more than one blog post on it in early 2009. This is the whole “Making work pay Obama tax credit” rational. Also Republicans went along with Obama last December cutting employees FICA taxes instead of something that made any sense like cutting the employers side of FICA taxes.

Now you got people paying no Federal taxes at all, or very little, entitled to medicare and SS all while supporting tax increases on the rich.

Reagan cut all tax rates but on the other side increased medicare and SS payroll taxes and used the surplus (the trust funds) to make up the difference. That was a political move that Democats learned to take advantage of. Democrats want to tax the poor and middle class yes, but in hidden taxes.

[ding_dong_daddy_from_dumas]

As long as voters can vote for federal stuff that they dont have to pay for, Democrats will aways have the edge.

May not quite "always." Obama and some Dems extended the Bush tax because, at that time, polls showed that's what voters wanted.

But now Obama is pretending that he hates Goldman Sachs and GE, using them as examples why we should raise taxes on small businesses. They will keep talking about taxing "the rich," and it may help them in 2012 if the GOP is unable to refute their arguments, but the Bush tax cuts will not expire for a couple of years.

In a way, that's good for the Dems, because the tax cuts give them something to attack (e. g. lower taxes "cause deficits"), while at the same time, they mitigate some of their destructive policies.

[muawiyah]

Your reply was one of those “teachable moments”.