Moderated by Rick Badie
How valid is the statement that 47 percent of Americans pay no income tax? Very true, writes one of today’s guest writers, who says the number of non-payers sits at an all-time high with Southern states on top. Georgia has the second-highest percentage of non-payers at 42.5 percent, next to Mississippi’s 44.5 percent. And a local fiscal analyst says numbers are often cherry-picked and misused to bolster the argument that too many people depend on government. He suggests that everybody has “skin in the game” when it comes to taxes.
Commenting is open below following Alan Essig’s column.
By Scott Hodge
It may have been “inelegant,” but Mitt Romney’s comments about the 47 percent of Americans who pay no income taxes has ignited an overdue conversation about who should pay income taxes and how much our lawmakers should use the IRS to deliver social benefits.
Georgia, like many Southern states, finds itself squarely in the middle of this debate. It has the second-highest percentage of non-payers in the country, next to Mississippi. Before we get into what this means, let’s lay down a few facts.
The “47 percent” is actually comprised of two groups, people who file a tax return and those whose incomes are below the threshold required to file (which is $9,700 for a single individual). In 2010, about 143 million filed a tax return. Of this group, 58 million, or about 41 percent, had no income tax liability after taking advantage of tax code credits and deductions.
We now have more non-payers than at any time since 1940 when the income tax was expanded to include all workers. Before World War II, the income tax only applied to upper-income families.
In the past 20 years, lawmakers have turned the tax code into a vehicle for delivering social programs. There are tax credits for having children, putting them in day care, buying your first home, replacing the home’s windows, buying a hybrid car and going to college, for example.
All of these tax credits not only help reduce the amount of taxes people owe, but in many cases they enable people to get a check back from the IRS even if they don’t owe income taxes (these are called “refundable” tax credits). Today these credits total $224 billion, half of which are refundable.
Whether or not someone is a non-payer is a function of two things, theirincome and how theirlifestyles match the tax code. The majority of non-payers earn less than $50,000 and are eligible for programs like the Earned Income Tax Credit and the Child Tax Credit.
Lots of taxpayers fit this description in Georgia and in many states in the South, Southwest, and West. Mississippi has the highest percentage of non-payers at 44.5 percent, largely due to its low average income. Georgia is No. 2 at 42.5 percent of filers for the same reason. Alaska and North Dakota – which have relatively high median incomes and low unemployment – have the lowest percentage of non-payers at 22 percent and 26.3 percent, respectively.
Does this mean that Georgia has a lot of deadbeats? No, but it has lots of people who are eligible for these new tax programs and who are becoming disconnected from the basic cost of government.
A new Tax Foundation study has found that the growth of non-payers over the past 20 years is associated with as much as $213 billion in higher transfer spending this year. The study also found a linkage between the growth of non-payers and the federal debt.
Can we afford to have so many people off the income tax rolls at a time when the government is running trillion-dollar deficits? Is it good for our democracy to have only half the population shouldering the cost of government while everyone enjoys its benefits?
Scott A. Hodge is president of the Tax Foundation, a nonpartisan tax research organization in Washington, DC.
By Alan Essig
It’s time to put an end to the rumor that nearly half of Americans don’t have any “skin in the game” when it comes to paying taxes.
This popular claim of late among politicians both in Georgia and on the national stage is part of a broader narrative that government is creating a class of Americans overly dependent on public help, too lazy to work, and unwilling to shoulder responsibility. At the heart of this falsehood is a terrible misuse of cherry-picked numbers. The truth tells a very different story.
First, some quick background: the “nearly half of Americans don’t pay taxes” claim is based on a recent study from the nonpartisan and highly respected Tax Policy Center of the Brookings Institution, which estimates nearly 47 percent of Americans paid no federal income tax in 2011. A separate study by the right-leaning Tax Foundation found that the percentage of Georgians not paying federal income tax is particularly high, second only to Mississippi as of 2009. While these numbers are technically correct, they can also be misleading and easy to manipulate. As one of the authors of the original Brookings report later said, “rarely has a bit of data been so misunderstood or so misused.”
There are several reasons why. First, the number only refers to federal income taxes as opposed to all the other taxes people pay. Everyone pays sales taxes. Anyone with a job pays payroll taxes for Social Security and Medicare. Homeowners pay state and local property taxes regardless of whether they’re rich or poor. Anyone who drives a car gets taxed on gas.
Take all of those federal, state, and local taxes into account, and it’s clear that everyone has skin in the game. Our tax system is not divided between half who pay and half who mooch. Everyone pays something and most pay between 20 and 30 percent of their income, according to the nonpartisan Institute on Taxation and Economic Policy.
Additionally, there are serious misconceptions about who those Americans not paying federal income tax actually are. Rather than being the stereotypical freeloader unwilling to work, more than half of non-payers are working adults who simply aren’t paid enough to owe federal income taxes. Ask them if they’d rather make enough to support their families even if it means paying income tax and the answer would definitely be a resounding yes.”
About one in five not paying federal income tax are retired workers. Most of the rest are college students, unemployed, or disabled (including many veterans with combat injuries).
Furthermore, because someone isn’t paying federal income tax today doesn’t mean they never did or never will. Working families get a break when their paychecks are down so they can get back on their feet and start paying again when their incomes improve. Students have low tax bills while they’re in school so they can get the skills to be gainfully employed taxpayers later. And the elderly paid their fair share for decades so they could live with dignity in retirement.
There are more Americans not paying federal income tax than in the past. That’s because of the massive shock of the Great Recession: when people lose their jobs and incomes go down, income tax liability drops.
That’s as it should be. With bipartisan support, federal tax laws have been changed over the years to make sure people don’t pay income tax until they can afford to. That’s a formula for making people independent, not dependent.
Alan Essig is executive director of the Georgia Budget and Policy Institute.