Americans Paying No Federal Income Tax Falls to 43% (VIDEO)

The 47% who pay no federal income taxes became a central theme of the 2012 U.S. presidential election. They were characterized as “takers” as opposed to “makers” who pay income taxes. Turns out 47% is unusually high, and an indicator of bad economic times and corresponding stimulus tax subsidies. While during the previous two years the number reached 50%, the number was 38% in 2009. Turns out that number is on the way back down.

The percentage of Americans who pay no federal income tax has dropped to 43%

According to the Tax Policy Center, that number should continue to drop, reaching 34% by 2022 due to the combination of tax subsidies expiring and the economy improving. That being said, a more nuanced look at the 43% of people who pay no federal income tax reveals it isn’t simply a system of makers and takers. Roberton Williams, a Sol Price Fellow at TPC narrates a brilliant video that summarizes some of these nuances for easy understanding (see below). I offer a brief overview in the following paragraph.

29% of the 43% are employed, and pay federal FICA taxes for Medicare and Social Security. Incentives and deductions that encourage work, home ownership, and business growth often offset money they would otherwise owe in federal income taxes: things like childcare, mortgage deduction, and the earned income credit, subsidizing low-income wages (which encourages employment). That leaves only 14% of Americans not paying anything from their paychecks. Out of that 14, 10% are over 65, retired and not making enough income to be taxed.  That leaves 4%, 3% of which earn less than $20K in annual income, putting them below the poverty level. In addition, all of these people will pay property taxes, state and local income taxes, sales taxes, gas taxes, and so-called “sin taxes” on alcohol and tobacco. Many of these people will give a lot to charity, receive tax exempt investment income, or have already paid taxes on income earned abroad. Some have big medical bills, large business losses and a variety of other situations that wipe out what they owe to the U.S. government.