Who Are Those People That Pay No Federal Income Tax?

“Nearly Half of All Americans Don’t Pay Income Taxes.”

What an eye-catcher!  It was for me the first time I saw it.  What does that statement really tell you though?  Is it a claim that nearly half of Americans don’t work or that half cheat on their taxes or don’t make enough money to pay taxes or something else.  Anyway, the statement made me curious enough to do a little more digging so I could get a better picture of just who these people are that pay no income taxes and as it turns out, the IRS has a pretty good bit of data readily available on their website.

In the following table, I’ve taken information from the IRS website on tax return filers from the latest year that complete results are available, 2009, for a closer look.  The IRS results include number of filers, number of filers with no tax liability, AGI, exemptions and deductions, etc., for different categories of filers.  I’ve taken these results and expanded on them to give me a better picture of the people that paid taxes and did not pay taxes that year.



From the table, I see that 41% of returns (as opposed to “nearly half of all Americans”) show no federal income tax.  Okay.  What else can we learn from the table?  Well, 22% of the returns showing no income tax reported an AGI of less than $15,000.  Assuming a 40-hour work week with 52 weeks per year, that works out to $7.21/hour or close to minimum wage in many areas.  Another 1.6% of the returns showing no income tax went to filers with an AGI between $50,000 and $75,000 and if that group had paid the category average income tax, an additional $10.6 billion in federal income taxes would have been collected.  Another 0.5% of returns showing no taxes had AGI’s ranging from $75,000 to over $10,000,000 and if the category average income tax had been collected from them, an additional $8.4 billion would have been due.  As for collecting income taxes from more of those lower wage earners, I can think of two options.  The first would be to eliminate the standard deduction and personal exemption but the drawback to that approach would be that higher income earners would need to give up their deductions and exemptions as well just to be fair. The second, and I think the better, approach would be to simply pass a law making it illegal to earn less than say $30,000 per year.  And I’d be willing to bet that those “new and improved” wage earners would be more than willing to pay some income taxes in exchange for that higher wage.





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