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Title: Why Do So Many Americans Pay No Income Taxes?
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URL Source: http://keithhennessey.com/2010/04/15/off-the-rolls/
Published: Apr 16, 2010
Author: Keith Hennessey
Post Date: 2010-04-16 12:18:30 by Skip Intro
Keywords: None
Views: 2281
Comments: 15
Today many are discussing how many Americans do not owe income taxes. The traditional debate splits along partisan lines. Many Republicans and conservatives argue it is both unfair and politically dangerous to have (almost half / more than one-third, depending on who’s measuring) of Americans not owing any income taxes. Many Democrats argue the rich should pay more, and that it’s good that low and even moderate-income people owe no income taxes. I wonder how many Republican Members of Congress remember that they are, in large part, responsible for this outcome? First, here’s a quick refresher on the difference between a tax deduction and a tax credit: * Suppose you make $60,000 per year. If you donate $5,000 to charity, you get a $5,000 deduction. You pay income taxes on only $55,000. * Suppose a married couple finds they owe $12,000 in income taxes before accounting for the child credit. If they have three kids, they get a $1,000 tax credit for each child, for a total of $3,000 in tax credits. They subtract this $3,000 from their $12,000 of income taxes owed, leaving them owing $9,000 after accounting for the child tax credit. * Suppose this same family owed only $2,500 in income taxes before accounting for their three children and the child tax credit. Since the child tax credit is refundable, the $3,000 credit wipes out all of their $2,500 of income tax liability and they get $500 from Uncle Sam. The reason so many Americans don’t owe income taxes is because we have two big tax credits in the code: the Earned Income Tax Credit (EITC) and the child tax credit. I hope the above explanation shows the power of a tax credit: one dollar of tax credit wipes out one dollar of tax liability. So if you provide a big tax credit to someone who owes only a small amount of income taxes, you’re probably going to move them into the non-payer category. The EITC benefits low-wage earners. Legislative support often splits roughly along party lines, with most Democrats wanting a bigger EITC, and many Republicans wanting a smaller (or, at least, no bigger) EITC. Republicans like to complain about the EITC on a day like today. But most of the increase since the mid-1990s in the number of people who owe no income taxes is the result of the child tax credit. This policy was created by Congressional Republicans and expanded with Republicans in the lead. The nonpartisan Tax Foundation has measured the top nonpayer threshold. This is the highest income taxpayer that owes no income taxes, setting aside unusual tax situations. They looked at how the top nonpayer threshold changed from 1993 to today for a married couple with two kids. All figures are in 2010 dollars for comparison: * In 1997 every “normal” married couple with two children that earned $24,000 or more (in today’s dollars) had to pay at least some income taxes. The top nonpayer threshold for a family of this size was just under $24,000. This means there were some four-person families with income just below $24,000 that owed no income taxes. * In 1997 a Republican majority Congress and President Clinton enacted the Balanced Budget Act. At the insistence of Congressional Republicans, this law created a $400-per-child tax credit which began in 1998. This caused the top nonpayer threshold to jump more than $7,000, to about $31,300. Millions of families with kids with incomes between $24,000 and $31,300 were “taken off the rolls” because the child tax credit wiped out the small income tax liability they owed. * As a result of the 1997 law, in 1999 the child tax credit automatically increased to $500 per child, and the threshold for a married family with two kids grew to $32,800 in today’s dollars. * In 2001 President Bush and the Republican Congress enacted a major tax law that increased the child tax credit to $600. This law also introduced the 10% income tax bracket, which lowered by 5 percentage points the lowest income tax rate. The combination of these two tax changes raised the top nonpayer threshold to $38,700. That law further phased in over time increases in the child credit to $1,000 per child. * The 2003 tax law enacted by President Bush and the Republican Congress accelerated the $1,000 per child amount to be effective immediately. This increased the threshold to $47,400 in 2003. That’s a huge jump. It was incredibly popular, and it helped create political impetus for the 2003 law which also accelerated rate reductions and cut capital gains and dividend rates. * The 2008 stimulus (President Bush + Democratic majority Congress) included stimulus checks of $1,200 per married couple, plus another $300 per child. This increased the threshold to $56,700. This was a one-time increase, however, and the non-stimulus threshold for 2008 was about $44,500. * In 2009 President Obama and a Democratic majority Congress increased this threshold to $51,400 with the new “making-work-pay” tax credit. This was enacted on near party-line votes. That threshold drops slightly to about $50,300 this year. What can we conclude from this? * The huge number of Americans who owe no income taxes is the result of the interaction of three tax policies: 1. a progressive rate structure and a standard deduction; 2. the Earned Income Tax Credit, which significantly reduces tax liability for the lowest earners; 3. the per-child tax credit, which significantly reduces tax liability for low- and moderate-income families with kids. * Different political coalitions support these three policies: o There is broad-based political support spanning both parties for a progressive rate structure. Republicans split on this point, with some conservatives favoring a flat tax. Even many flat tax supporters support some progressivity with a large(r) standard deduction. o Support for expanding/keeping EITC tends to be center-left. Many on the right oppose it at its current size. o Support for the per-child tax credit is nearly universal, but it started on the right. * The large number of people who owed no income taxes until the mid-90s was driven largely by the first two factors and especially by the Earned Income Tax Credit, a policy driven by the Left. * The dramatic increase in the number of people who owed no income taxes since the mid-90s was driven almost entirely by the creation and expansion of the per-child tax credit, a policy driven by the Right. * This was a “pro-family” tax credit created in the 1994 Contract with America, pushed to a veto by Congressional Republicans in 1995, negotiated with President Clinton in 1997, and expanded by President Bush and Republicans. Behind closed doors Republicans split on the per-child tax credit. Economic types oppose it or hold their noses. Social/family conservatives vigorously support it, as does almost anyone running for office. It’s easy for Republicans to complain today about the end result. They (we) have an out in that they can point to the EITC as one of the causes. But much of this outcome is driven by tax policy changes initiated and expanded by Republicans. If you wanted to work within the current income tax system and reverse some of this trend, broadening the income-taxpaying base, you’d be hard pressed to get a big effect just by raising the bottom rates. To affect millions of people you’d need to either scale back EITC or the per-child tax credit. I think both are highly unlikely.
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#1. To: All (#0)
Yet at the same time that more Americans pay no taxes, the teabaggers are out protesting that taxes are too high. Nothing like a complete disconnect from reality.
"I could give a flying crap about the political process. We're an entertainment company". - Glen Beck
I find it amusing that the Right is screaming that we're over-taxed while at the same time it's complaining that too many people don't pay taxes.
Being a Republican means you get to choose your own reality.
As they monger for more nations to invade in Israel's behalf too, although most seem oblivious to what country would be the immediate benefactor. I can only assume they must run their own personal finances the same way.
It's the war, stupid.
You know why that is. It's because the wrong people are having to pay taxes. The countrie's Rush Limbaughs should be allowed to keep all of what they make because they're "productive". The little guys working at low wage jobs are the ones who should get hit. After all, it's not like they can live on what they make now, so what's wrong with making them try to live on less? It will inspire them to become rich entrepreneurs, like Rush.
"I could give a flying crap about the political process. We're an entertainment company". - Glen Beck
The also want us to build bases on the moon to protect it from those damn Chinese commies. Just don't try to tax us for it, or else!
"I could give a flying crap about the political process. We're an entertainment company". - Glen Beck
The Chinese will have the best of both worlds. They will buy the bonds that pay for the top of the line anti Chicom moon bases and as soon as they are finished then foreclose based on some technicality. And our little experiment of running our government like a corporation will be over.
It's the war, stupid.
Relax, much more of this and nobody will be left in the tax bracket that actually pays the bills...
my anti groupie can't get through life without me.
Tax brackets are set in stone? Who knew?
It's the war, stupid.
Because pushers don't issue W2 forms.
There's No Other Place Like This Place Anywhere Near This Place. So This Must Be The Place . . .
Skippy, you dumbshit, the people protesting that taxes are too high are those who are actually paying taxes, unlike welfare queens like you. Sneakypete, have you ever been married? Said things you later regretted?
Actually, the TP is protesting insane spending, insane growth of the Federal Government under the last TWO administrations, and insane tax rates.
my anti groupie can't get through life without me.
Being a Republican means you get to choose your own reality.
And? Like I said, much more of this, we'll all be excluded from paying taxes. Cause we'll all be unemployed.
I can see NOVEMBER from my House....
Speaking of welfare queers yucktard, how are things in the biggest welfare state in the US these days?
"I could give a flying crap about the political process. We're an entertainment company". - Glen Beck
Please leave your paramours and relatives in the AIDS treatment centers, cum- guzzler. Sneakypete, have you ever been married? Said things you later regretted?
It’s easy for Republicans to complain today about the end result. They (we) have an out in that they can point to the EITC as one of the causes. But much of this outcome is driven by tax policy changes initiated and expanded by Republicans.
#2. To: Skip Intro (#0)
#3. To: Skip Intro (#1)
Yet at the same time that more Americans pay no taxes, the teabaggers are out protesting that taxes are too high. Nothing like a complete disconnect from reality.
#4. To: go65 (#2)
I find it amusing that the Right is screaming that we're over-taxed while at the same time it's complaining that too many people don't pay taxes.
#5. To: mininggold (#3)
As they monger for more nations to invade in Israel's behalf too, although most seem oblivious to what country would be the immediate benefactor.
#6. To: Skip Intro (#5)
The also want us to build bases on the moon to protect it from those damn Chinese commies. Just don't try to tax us for it, or else!
#7. To: go65 (#2)
#8. To: Badeye (#7)
Relax, much more of this and nobody will be left in the tax bracket that actually pays the bills...
#9. To: Skip Intro (#0)
#10. To: Skip Intro (#1)
Yet at the same time that more Americans pay no taxes, the teabaggers are out protesting that taxes are too high. Nothing like a complete disconnect from reality.
#11. To: Ibluafartsky (#10)
#12. To: Badeye (#7)
Relax, much more of this and nobody will be left in the tax bracket that actually pays the bills...
#13. To: go65 (#12)
#14. To: Ibluafartsky (#10)
#15. To: Skip Intro (#14)
welfare queers
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