47% will pay no federal income tax

[Heracles 417]

Some may see this as the bottom half are simply slacking off not paying their fair share. I see it as backing a point of mine made in other threads, that Americans are simply becoming poorer and daily.

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An increasing number of households end up owing nothing in major federal taxes, but the situation may not be sustainable over the long run.

By Jeanne Sahadi, CNNMoney.com senior writer

September 30, 2009: 12:55 PM ET

NEW YORK (CNNMoney.com) -- Most people think they pay too much to Uncle Sam, but for some people it simply is not true.

In 2009, roughly 47% of households, or 71 million, will not owe any federal income tax, according to estimates by the nonpartisan Tax Policy Center.

Some in that group will even get additional money from the government because they qualify for refundable tax breaks.

The ranks of those whose major federal tax burdens net out at zero -- or less -- is on the rise. The center's original 2009 estimate was 38%. That was before enactment in February of the $787 billion economic recovery package, which included a host of new or expanded tax breaks.

The issue doesn't get a lot of attention even as lawmakers debate how to pay for policy initiatives like health reform, whether to extend the Bush tax cuts and how to reduce the deficit.

The vast majority of households making up to $30,000 fall into the category, as do nearly half of all households making between $30,000 and $40,000.

As you move up the income scale the percentages drop.

Nearly 22% of those making between $50,000 and $75,000 end up with no federal income tax liability or negative liability as do 9% of households with incomes between $75,000 and $100,000.

Of course, income taxes don't tell the whole story. Workers are also subject to payroll taxes, which support Social Security and Medicare.

When considering federal income taxes in combination with payroll taxes, the percent of households with a net liability of zero or less is estimated to be 24% this year, according to the Tax Policy Center's estimates.

A key reason why there is a zero-liability group at all is because the U.S. tax system is progressive. Those who bring in more money pay more than those lower down the income scale to support government functions such as national defense and social safety nets like Medicaid for those in need. That progressivity can be dialed up or down.

"Some think it's too progressive. Some don't think it's progressive enough," said Roberton Williams, a senior fellow at the center.

President Obama falls into the latter camp. He has proposed increasing the income tax burden on families making more than $250,000 and individuals making more than $200,000, while offering new measures to reduce the tax bite for most Americans making less.

One of Obama's proposals is to extend the 2001 and 2003 Bush tax cuts for everyone except high-income tax filers, which was the group that derived the most benefit from those cuts.

As a result, under Obama's budget, he would keep the ranks of the non-payers higher than they would otherwise be.

Why the tax-free matter

The question of who pays and who doesn't is not a trivial matter. But Washington policymakers are not dealing with it in an explicit way.

And that's a problem, given the country's fiscal outlook.

If asked to vote up or down on whether they are comfortable with such a large group of voters contributing no federal income tax or payroll tax revenue, the majority may well decide it is appropriate given the means of the households involved. Or they may decide that it's not.

Either way, that decision should inform the debate about the many costly policies and deficit-reduction strategies that lawmakers will be grappling with for years to come.

"As the number [of nonpayers] becomes larger, we have to question whether we'll make good decisions about how to allocate resources," economist George Zodrow, a professor at Rice University. "Most people don't understand how skewed the tax distribution is."

Experts say that to pay for all the things on the country's growing tab, the money can't just come from a shrunken pool of taxpayers.

"Over the long run, you'll have to have a broader base," Zodrow said.

Find this article at:

http://money.cnn.com/2009/09/30/pf/taxes/w...taxes/index.htm

Edited September 30, 2009 by Booyah!

[mawilson 2,133]

Sounds fishy to me. How can someone's federal tax liability be zero?

[w¡n9Nµ7 §£@¥€r 123]

Sounds fishy to me. How can someone's federal tax liability be zero?

personal exemptions, childcare credits, etc etc etc?

Edited September 30, 2009 by w¡n9Nµ7 §£@¥€r

[Jenn! 918]

Yeah, 10% making over $75K have 0 liability? What do those people have 10 kids?

[w¡n9Nµ7 §£@¥€r 123]

Dated 3/27/2008

Last year 49.2 million U.S. households filed returns that obligated them to pay absolutely no federal income taxes - and they didn't necessarily do anything illegal.

...

So how do the 49.2 million do it? That's what Money Magazine set out to learn.

...

From its beginnings in 1913, the income tax system was designed to be progressive; the more you make, the more you pay.

...

Some 92% of zero-tax filers earn less than $30,000 a year, according to the Tax Foundation, a non-partisan research group in Washington, D.C.

...

Your annual income wouldn't have to be quite as low as you'd imagine for you to be free of the income tax. Because of deductions, credits and exemptions, a family of four can earn about $43,000 and pay nothing. For a single person without kids, that threshold is $10,300.

Over the past decade, Congress has removed more and more people from the tax rolls by increasing the size of those adjustments. The personal exemption, for example, rose from $1,000 in 1980 to $3,400 in 2007. Additionally, low-income families receive a $1,000-per-child credit and a special credit for the working poor.

...

Income from munis, which are used to finance roads, schools and other public works, is tax-free and not subject to the AMT (unless it's from so-called private activity bonds that sponsor projects such as airports and stadiums).

Invest your entire wad in the right kind of munis and you can wipe out your income tax bill when you live off your savings in retirement (earn too much, though, and your Social Security may be taxed).

...

Despite constant loophole tightening, owning a small business is still a license to deduct. Just a partial list of what can be subtracted from income is dazzling: overhead, salaries and depreciation for equipment; a deduction just for making products in the U.S.; and a $2,400 tax credit in the first year after hiring certain disadvantaged workers.

...

But can all of this add up to zero? Brent Kessel, co-founder of Abacus Wealth Partners in Los Angeles and author of "It's Not About the Money," shared a client's return (without revealing the name). In 2006 the income from his client's business was $749,000, with another $226,000 in interest and rental income making the total taxable income $975,000.

But the owner contributed $733,000 to his own defined-benefit pension plan (which will pay him a taxable income in retirement). After deductions, his income tax came to $30,000, just 3% of his total earnings. "That's not zero, but it's pretty good," says Kessel.

[Heracles 417]

It's shocking to me that 69.5% of household now earn under $50K. If anyone thinks outsourcing and cheap prices has been good for America, they seriously need a smack in the head. Or they're in the top 1.5% bracket that are profiteering from it.

Any other country that wants to see what happens when you replace local stores and line your country with cheap walmarts, here you go. Not only does the bottom 47% pay not taxes but they probably use the majority of public services too.

It only gets better when you think of all the illegal aliens both entering and still here that are driving salaries down even more. Give it another 20 years and 80% of American households will be earning under $50K.

Edited September 30, 2009 by Booyah!

[Jenn! 918]

Ah, yes, small business owners.

[w¡n9Nµ7 §£@¥€r 123]

It's shocking to me that 69.5% of household now earn under $50K. If anyone thinks outsourcing and cheap prices has been good for America, they seriously need a smack in the head. Or they're in the top 1.5% bracket that are profiteering from it.

Any other country that wants to see what happens when you replace local stores and line your country with cheap walmarts, here you go. Not only does the bottom 47% pay not taxes but they probably use the majority of public services too.

It only gets better when you think of all the illegal aliens both entering and still here that are driving salaries down even more. Give it another 20 years and 80% of American households will be earning under $50K.

More likely, they'll be earning under 80K but 80K will be then what 50K is now.

[Niels Bohr 72]

I will tell you whether it's outsourcing or not that professors gets paid about 100k+ if they've been outsourced. Does that speak of anything? Whey are more University Professors accumulating foreigners? It's definitely not cheap pay.

There are many reasons. One of those reason that is in the top is that there are not many qualified people to fill those positions. And, the US government limits the amount of H1-B Visas or Employment based petition.

Edited September 30, 2009 by Niels Bohr

[Heracles 417]

The deficit all makes sense now. The country is not collecting enough tax.

This is a good reason why the feds need to immediately implement a GST of at least 5% on everything, to get some of the tax that goes missing back.

Edited September 30, 2009 by Booyah!

[w¡n9Nµ7 §£@¥€r 123]

I will tell you whether it's outsourcing or not that professors gets paid about 100k+ if they've been outsourced. Does that speak of anything? Whey are more University Professors accumulating foreigners?

There are many reasons. One of those reason that is in the top is that there are not many qualified people to fill those positions.

100K is slightly below average salary in IT with 5-10 years of experience. To pay that to a professor who has to read alllllll those books and attend allllll those boring lectures is just wrong

[Dan J 277]

End the dependency exemptions and slightly decrease taxes overall. That way childless folks are not paying an unfair share for all the benefits used by kids that they may never have. Of course that may never happen, as many see having kids and an obligation not a financial decision.

[w¡n9Nµ7 §£@¥€r 123]

The deficit all makes sense now. The country is not collecting enough tax.

This is a good reason why the feds need to immediately implement a GST of at least 5% on everything, to get some of the tax that goes missing back.

Your first post in this thread made the following point:

Americans are simply becoming poorer and daily.

And now you want to hit those very Americans with an added sales tax? Why not go after those who can actually afford it?

[Niels Bohr 72]

I will tell you whether it's outsourcing or not that professors gets paid about 100k+ if they've been outsourced. Does that speak of anything? Whey are more University Professors accumulating foreigners?

There are many reasons. One of those reason that is in the top is that there are not many qualified people to fill those positions.

100K is slightly below average salary in IT with 5-10 years of experience. To pay that to a professor who has to read alllllll those books and attend allllll those boring lectures is just wrong

IT is overrated. Not many get incomes over 100K. In Boston, most of them range around 50-70k. Realistically, Computer Engineers are far more capable than an IT trained professional. They are getting paid on average 80k. It says something about those working in IT.

Edited September 30, 2009 by Niels Bohr

[Heracles 417]

I will tell you whether it's outsourcing or not that professors gets paid about 100k+ if they've been outsourced. Does that speak of anything? Whey are more University Professors accumulating foreigners? It's definitely not cheap pay.

There are many reasons. One of those reason that is in the top is that there are not many qualified people to fill those positions.

College has become big business here. It's not about educating young adults. Just look at how much emphasis now goes on college football.

On top of that, some students end up paying up to $170k for their degree. How many degrees do these wealthy house wives from xyz have? ZERO

Edited September 30, 2009 by Booyah!