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There’s been a lot of uninformed anger recently about the fact – the alleged fact – that almost half of Americans will pay no taxes this year. There’s enough truth in this stat to raise some interesting questions, but first a fact check:
It’s true that an estimated 47 percent of Americans – or “tax units,” the tax jargon for individuals and households – likely owed no 2009 federal income tax on Thursday. The estimate comes from the highly regarded Tax Policy Center, which first revealed it last summer. Note that these are people who owed no income taxes. Many or most of them pay Social Security and Medicare taxes and sales taxes, and some pay corporate and property taxes.
The number is higher than usual – 47 percent instead of the normal 38 percent -- because of the recession. People who lost their jobs tended to see their income tax liability shrink or vanish. Add to that the fact that the stimulus legislation passed by Congress contained enough tax breaks -- an idea conservatives liked a lot better than spending programs – to push some people’s tax liability to zero, which was the general point.
Analysts who should know better say it won’t be long before more than half of Americans pay no taxes, since this figure is bound to rise. But the opposite is true. If the economy recovers and the stimulus law expires as scheduled at the end of this year, the number with no income tax liability should revert to the usual 38 percent or so. (If some of the stimulus tax breaks are extended, as some Democrats propose, the percentage might be higher than 38 percent.)
The real question, though, is how we got to the point where more than a third of Americans – tax units – pay no income tax. Isn’t that an outrage? Well, if you want to be angry at someone, there’s a long line of guilty parties, including President Reagan, the two Presidents Bush, along with Democratic presidents and most of the Republicans and Democrats in Congress.
Today’s tax system is the result off decades of bipartisan legislating. Both parties have supported and endlessly tinkered with a progressive income tax that levies a greater burden on those with more money, and lets many low-income people escape income taxes altogether. Conservatives grumble that the system is riddled with tax breaks that smack of social engineering. Guilty as charged! Among other things, Washington wants people to work and have kids, so two of the biggest breaks go to low-income people who work (the Earned Income Tax Credit) or have children (the $1,000 child tax credit). Both help push some people’s income tax liability to zero.
Then there were the most recent tax cuts promoted by President George W. Bush in 2001 and 2003, which excused millions of Americans from paying income taxes in return for generous tax breaks for the better-off. In 2004, Bush bragged that his 2003 tax cuts took 5 million low-income Americans off the tax rolls. The tradeoff was that people making $1 million or more got an average tax cut of almost $113,000. If you don’t remember conservatives complaining about that deal at the time, you’re not alone.
It’s wearying that critics rail about the 38 percent (or 47 percent) of people who don’t pay income taxes as if this were some sort of liberal plot (obviously not) or that the non-income payers are lazy freeloaders. They’re mostly elderly people living on small fixed incomes, low-income working people or middle-class married couples with enough kids to wipe out their tax liability.
There are legitimate questions about whether low-income people should pay at least a symbolic amount of income tax to give them a stake in controlling the cost of government, or whether they should pay more through the progressive income tax system and less in regressive payroll taxes. There are also legitimate questions about whether the entire tax system ought to be blown up to make it much less complex and squeeze out the social engineering – including popular tax breaks for homeowners and people who get their health insurance from their employers.
Meanwhile, though, those who’d like to do any or all of those things would enhance their credibility by getting their facts straight. A lot of American paid no income taxes on April 15 because liberals and conservatives alike decided that made sense.
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George Hager is a member of the USA Today editorial board.