Pop Quiz: How Many Americans Actually Pay Income Tax?

Answer: 50%

A provocative statistic. Last July, the nonpartisan Tax Policy Center (a joint venture of the Urban Institute and the Brookings Institution) estimated that 47% of Americans would not owe a penny to the IRS for tax year 2009.(source) This is a scary statistic for our nation. With the Baby Boomers beginning to retire, huge stress will be placed on all the social programs including Social Security, Medicare, Medicaid, Prescription Drug Program, and the new Health Care Reform mandates. The burden of income taxation must be across the broad spectrum of American wage earners. Is it time to revise tax policy?
The White House has projected the federal deficit at $1.6 trillion for 2010 – that’s about 10.6% of our GDP, a percentage unseen since the 1940s. So is it fair to the nation so many Americans are legally avoiding federal income taxes?(source)

A major reason? Refundable tax credits. The Making Work Pay credit and other tax cuts accompanying the federal stimulus gave millions a refund this time around. If these credits hadn’t appeared, the Tax Policy Center (TPC) estimates 38% of us still wouldn’t have owed federal income tax for 2009, thanks to assorted variables – astute tax planning, low taxable income, and other factors.(source)

People who assume the rich are dodging taxes are misinformed. The TPC found that only about 1.5% of those with taxable incomes of $1 million or more owed no federal income tax for 2009. For those with taxable incomes from $500,000-$1,000,000, the estimate rises to just 2%.(source)

If you made between $75,000-100,000 in taxable income in 2009, you may have been in the lucky 9.2% who the TPC says didn’t owe anything to the IRS. In contrast, it figured that 61.8% of taxpayers who earned $20,000-30,000 last year and 47.5% of those with taxable incomes from $30,000-40,000 had no federal tax liability.(source)

Can you bring the deficit down without new or excessive taxes?
Good question. At first glance, it may seem impossible. The Treasury, however, has a plan to do it, and it looks like this: cut war spending by $250 billion, save another $252 billion by letting tax cuts sunset for couples making more than $250,000 yearly, collect $331 billion in bank fees, and save $105 billion from a selective federal spending freeze. This could shrink the deficit to around 3% of GDP, which the Treasury feels is bearable.(source)
Of course, bipartisan politics (does this still exist today?) might get in the way. Higher federal income taxes (and new kinds of taxes; see article below) seem to be looming in the future. As for legislators figuring out a way to spare us from them, that would seem a longshot.

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  • Sir,

    Last time I checked all of those folks that you believe should pay income taxes already pay to support your Social Security and Medicare. It is called FICA taxes. You conveniently forgot to mention this fact in your article or you intentionally did so. Either way that is not a good thing because either you are sloppy in your analytical thinking or biased in a way that tells me that you are not open to both sides of an argument. In addition, those of us who live in NY State pay for Medicaid through property taxes and state taxes as the two entities(local and state) share in this cost with the federal government. Duh, the Prescription Drug program was legislated to not be paid for by the folks who gave us those tax cuts. As a result of those tax cuts we have produced an economy where the median income has actually declined. Median income hasn’t increased since the late 90’s. You are entitled to your own opinion but not your own facts. I am forever grateful to not be the beneficiary of your wise counsel.

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