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Thread: Nearly Half of US Households Escape Fed Income Tax

  1. #1
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    Nearly Half of US Households Escape Fed Income Tax

    [I]Interesting facts. Hard to believe that we are nearing the point where only a minority of the population is responsible for federal revenues. Meant as an economic discussion, not a political one, BTW. [/I]

    [B]Nearly half of US households escape fed income tax[/B]

    WASHINGTON (AP) -- Tax Day is a dreaded deadline for millions, but for nearly half of U.S. households it's simply somebody else's problem.

    About 47 percent will pay no federal income taxes at all for 2009. Either their incomes were too low, or they qualified for enough credits, deductions and exemptions to eliminate their liability. That's according to projections by the Tax Policy Center, a Washington research organization.

    Most people still are required to file returns by the April 15 deadline. The penalty for skipping it is limited to the amount of taxes owed, but it's still almost always better to file: That's the only way to get a refund of all the income taxes withheld by employers.

    In recent years, credits for low- and middle-income families have grown so much that a family of four making as much as $50,000 will owe no federal income tax for 2009, as long as there are two children younger than 17, according to a separate analysis by the consulting firm Deloitte Tax.

    Tax cuts enacted in the past decade have been generous to wealthy taxpayers, too, making them a target for President Barack Obama and Democrats in Congress. Less noticed were tax cuts for low- and middle-income families, which were expanded when Obama signed the massive economic recovery package last year.

    The result is a tax system that exempts almost half the country from paying for programs that benefit everyone, including national defense, public safety, infrastructure and education. It is a system in which the top 10 percent of earners -- households making an average of $366,400 in 2006 -- paid about 73 percent of the income taxes collected by the federal government.

    The bottom 40 percent, on average, make a profit from the federal income tax, meaning they get more money in tax credits than they would otherwise owe in taxes. For those people, the government sends them a payment.

    "We have 50 percent of people who are getting something for nothing," said Curtis Dubay, senior tax policy analyst at the Heritage Foundation.

    The vast majority of people who escape federal income taxes still pay other taxes, including federal payroll taxes that fund Social Security and Medicare, and excise taxes on gasoline, aviation, alcohol and cigarettes. Many also pay state or local taxes on sales, income and property.

    That helps explain the country's aversion to taxes, said Clint Stretch, a tax policy expert Deloitte Tax. He said many people simply look at the difference between their gross pay and their take-home pay and blame the government for the disparity.

    "It's not uncommon for people to think that their Social Security taxes, their 401(k) contributions, their share of employer health premiums, all of that stuff in their mind gets lumped into income taxes," Stretch said.

    The federal income tax is the government's largest source of revenue, raising more than $900 billion -- or a little less than half of all government receipts -- in the budget year that ended last Sept. 30. But with deductions and credits, especially for families with children, there have long been people who don't pay it, mainly lower-income families.

    The number of households that don't pay federal income taxes increased substantially in 2008, when the poor economy reduced incomes and Congress cut taxes in an attempt to help recovery.

    In 2007, about 38 percent of households paid no federal income tax, a figure that jumped to 49 percent in 2008, according to estimates by the Tax Policy Center.

    In 2008, President George W. Bush signed a law providing most families with rebate checks of $300 to $1,200. Last year, Obama signed the economic recovery law that expanded some tax credits and created others. Most targeted low- and middle-income families.

    Obama's Making Work Pay credit provides as much as $800 to couples and $400 to individuals. The expanded child tax credit provides $1,000 for each child under 17. The Earned Income Tax Credit provides up to $5,657 to low-income families with at least three children.

    There are also tax credits for college expenses, buying a new home and upgrading an existing home with energy-efficient doors, windows, furnaces and other appliances. Many of the credits are refundable, meaning if the credits exceed the amount of income taxes owed, the taxpayer gets a payment from the government for the difference.

    "All these things are ways the government says, if you do this, we'll reduce your tax bill by some amount," said Roberton Williams, a senior fellow at the Tax Policy Center.

    The government could provide the same benefits through spending programs, with the same effect on the federal budget, Williams said. But it sounds better for politicians to say they cut taxes rather than they started a new spending program, he added.

    Obama has pushed tax cuts for low- and middle-income families and tax increases for the wealthy, arguing that wealthier taxpayers fared well in the past decade, so it's time to pay up. The nation's wealthiest taxpayers did get big tax breaks under Bush, with the top marginal tax rate reduced from 39.6 percent to 35 percent, and the second-highest rate reduced from 36 percent to 33 percent.

    But income tax rates were lowered at every income level. The changes made it relatively easy for families of four making $50,000 to eliminate their income tax liability.

    Here's how they did it, according to Deloitte Tax:

    The family was entitled to a standard deduction of $11,400 and four personal exemptions of $3,650 apiece, leaving a taxable income of $24,000. The federal income tax on $24,000 is $2,769.

    With two children younger than 17, the family qualified for two $1,000 child tax credits. Its Making Work Pay credit was $800 because the parents were married filing jointly.

    The $2,800 in credits exceeds the $2,769 in taxes, so the family makes a $31 profit from the federal income tax. That ought to take the sting out of April 15.
    [url]http://finance.yahoo.com/news/Nearly-half-of-US-households-apf-1105567323.html?x=0&.v=1[/url]

  2. #2
    [QUOTE=HDCentStOhio;3551101]Meant as an economic discussion, not a political one[/QUOTE]

    Good luck with that.

  3. #3
    Implment a Flat Income Tax Only.

    Or perhaps a VAT/National Sales Tax Only.

    Eliminate all other taxes, end all loopholes and exceptions and deductions.

    End use of the tax code as a political tool for social and moral engineering, or so-called "social justice".

    Pass a balanced-budget ammendment to the Consitution.

    Pipe dreams all. the entitlement state is here (has been for some time), and it's not realisticly going anywhere anytime soon (ever, IMO).

    Get to know our European friends, as our economy/system will continue to shift towards their for years to come. Do your personal due dilligence, and use every single deduction, loophole, trick and shelter allowable under the Law.

  4. #4
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    [QUOTE]"We have 50 percent of people who are getting something for nothing," said Curtis Dubay, senior tax policy analyst at the Heritage Foundation.[/QUOTE]
    Heritage Foundation? Are you sure that this isn't political? Bad form, HD. :cool:

    Raising kids while performing jobs that pay small [I]is[/I] giving something back; not "getting something for nothing". The typical non-affluent couple with teenagers are raising their kids to be productive members of society, because even though their wages are small, they are contributing at work, and helping their employers achieve the larger goals. How is that something for nothing? Dopes at the Heritage Foundation forget that schools are pretty much broke, so these parents are pulling double duty by showing up at schools after hours for activities that help the kids and the family grow together.

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    47% of the population is near the poverty level?!?

    That's horrible. ;)

    FWIW, us poor folk just take our tax returns and put it right back into the system by buying stuff and paying overdue bills...it's not like we keep it and hang out with it and stuff. It's pretty much already spent months before we even get it. I used mine this year to pay my overdue heating bills, took the wife in for a root canal, paid the blacktopper in advance to fix the driveway and bought a double stroller for the kiddos.

  6. #6
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    [QUOTE=PlumberKhan;3551157]47% of the population is near the poverty level?!?

    That's horrible. ;)

    FWIW, us poor folk just take our tax returns and put it right back into the system by buying stuff and paying overdue bills...it's not like we keep it and hang out with it and stuff. It's pretty much already spent months before we even get it. I used mine this year to pay my overdue heating bills, took the wife in for a root canal, paid the blacktopper in advance to fix the driveway and bought a double stroller for the kiddos.[/QUOTE]

    Do felons have to still pay taxes? I know they can't vote....

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    [QUOTE=quantum;3551171]Do felons have to still pay taxes? I know they can't vote....[/QUOTE]

    We can vote.

    Just not in Alabama, Delaware, Florida, Iowa, Kentucky, Mississippi, Nevada, New Mexico, Virginia and Wyoming.

    Scary, right?

  8. #8
    [QUOTE=PlumberKhan;3551157]47% of the population is near the poverty level?!?

    That's horrible. ;)

    FWIW, us poor folk just take our tax returns and put it right back into the system by buying stuff and paying overdue bills...it's not like we keep it and hang out with it and stuff. It's pretty much already spent months before we even get it. I used mine this year to pay my overdue heating bills, took the wife in for a root canal, paid the blacktopper in advance to fix the driveway and bought a double stroller for the kiddos.[/QUOTE]

    In all seriousness (always risky with you my friend).....

    We both know that the "47%" are not, in fact, "all near the poverty line".

    And we also both know that the issue isn't simply "getting a refund".

    The issue is a net result for 47% of people is paying no taxation whatsoever on their income. I.e. X paid $100 in taxes in 2009, but got a return of $400.

    And the risk, for those who not believe in the ideal of wealth redisribution, is that once you have 50% of the citizenry profiting (i.e. net income when calculating taxes paid vs. money sent back), it becomes and endless cycle of the "wealthy", i.e. those who pay more than they get back, funding the entire Government and all it's entitlements, for everyone. That kind of majority means it becomes vastly easier to vote in more people who will "tax the wealthy" and "redistribute it to the needy", i.e. tax the 10% to provide no burden on the 50-60%.

    If you cannot see the myriad problems such a system can cause, I don't know what to tell you. I maintain that aside from Constitutionally madated requirements (i.e. Defense), that the Government has little ethical or moral right to the benefits of my or anyone elses labor, and has no right to appoint itself economic God, free to determine who 'deserves" what from the labor of individuals.

    The only truly fair system is a Flat Taxation, or Consuption-based taxation system. Progressive Systems are, at their core, deeply unfair, and shift all burden for Government to a smaller and smaller percentage, while conversely shrinking the political power of that percentages vote.

  9. #9
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    [QUOTE=Warfish;3551185]In all seriousness (always risky with you my friend).....[/QUOTE]

    You just have to get everyone on the same page for a consumption tax to work. Problem is, the people that complain the loudest about redistribution of wealth are the very same people who changed the tax code during the last decade that expanded deductions and credits that enable suckers like me to get a refund larger than what we paid in taxes.

    But, like I said before, I didn't take my return and ship it to my offshore investments. I spent it immediately on bills. Just trying to simulate the WNY economy :P

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    [QUOTE=PlumberKhan;3551157]47% of the population is near the poverty level?!?

    That's horrible. ;)

    FWIW, us poor folk just take our tax returns and put it right back into the system by buying stuff and paying overdue bills...it's not like we keep it and hang out with it and stuff. It's pretty much already spent months before we even get it. I used mine this year to pay my overdue heating bills, took the wife in for a root canal, paid the blacktopper in advance to fix the driveway and bought a double stroller for the kiddos.[/QUOTE]

    "us" poor folk?? funny- I remember you complaining on this forum about the excessive tax return you were getting back no to long ago....

  11. #11
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    [QUOTE=Warfish;3551133]Implment a Flat Income Tax Only.

    Or perhaps a VAT/National Sales Tax Only.

    Eliminate all other taxes, end all loopholes and exceptions and deductions.

    End use of the tax code as a political tool for social and moral engineering, or so-called "social justice".

    Pass a balanced-budget ammendment to the Consitution.[/QUOTE]

    oh- the VAT tax is coming- sooner rather than later...don't worry about that...

    [QUOTE]Pipe dreams all. the entitlement state is here (has been for some time), and it's not realisticly going anywhere anytime soon (ever, IMO).

    Get to know our European friends, as our economy/system will continue to shift towards their for years to come. [B][B]Do your personal due dilligence, and use every single deduction, loophole, trick and shelter allowable under the Law[/B][/B].[/QUOTE]

    most soon to be wiped away to pay for the welfare state you speak about...

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    [QUOTE=Come Back to NY;3551205]"us" poor folk?? funny- I remember you complaining on this forum about the excessive tax return you were getting back no to long ago....[/QUOTE]

    You remember correctly...and the reason I got so much back, I suppose, is because of how comparatively low my income is. Why do you think I moved to Western New York? The weather? I could never afford to spend 400k on a house back home...I needed a 80k house.

    But like I said...all the money I got back this year got pumped right back into the system. National Fuel, a dentist, a paver and WalMart has it now...

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    [QUOTE=PlumberKhan;3551272]You remember correctly...and the reason I got so much back, I suppose, is because of how comparatively low my income is. Why do you think I moved to Western New York? The weather? I could never afford to spend 400k on a house back home...I needed a 80k house.

    But like I said...all the money I got back this year got pumped right back into the system. National Fuel, a dentist, a paver and WalMart has it now...[/QUOTE]

    it would also be deductions- mortgage interest, ira, real estate taxes, etc....things I'm sure they will try and do away with soon in the spirit of "economic justice"....

    its' almost to the point where it makes no sense anymore to make more than $5 more than what you need to live on.....

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    I found this great quote in another article on the subject.

    [B][I]As Scott Hodge of the Tax Foundation notes, "We're now in a situation where a record number of tax filers are completely disconnected from the cost of government."[/I][/B]

    Sums it up perfectly.

  15. #15
    This Administration and the past Administrations have looked into getting rid of the mortgage interest deductions.

    [QUOTE=Come Back to NY;3551282]it would also be deductions- mortgage interest, ira, real estate taxes, etc....things I'm sure they will try and do away with soon in the spirit of "economic justice"....

    its' almost to the point where it makes no sense anymore to make more than $5 more than what you need to live on.....[/QUOTE]
    Last edited by cr726; 04-08-2010 at 04:05 PM.

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    Silver lining. The number appears to be declining after spiking in 2008...

    [IMG]http://www.newser.com/getimage.aspx?mediaid=341607[/IMG]

  17. #17
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    [QUOTE=cr726;3551303]This Administration and the past Administrations have looked into getting rid of the mortgage interest deductions.[/QUOTE]
    You are 100% correct; but this will never happen.

  18. #18
    [QUOTE=WestCoastOffensive;3551323]You are 100% correct; but this will never happen.[/QUOTE]

    People are willing to spend a lot of money to hide their money.

  19. #19
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    [QUOTE=cr726;3551362]People are willing to spend a lot of money to hide their money.[/QUOTE]
    :D

    I think most see it as being subsidized by Uncle Sam; not as a way to hide money.

  20. #20
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    [QUOTE=cr726;3551303]This Administration and the past Administrations have looked into getting rid of the mortgage interest deductions.[/QUOTE]

    They already have. Its called the AMT. Raped me again this year.

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