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45% of US households paid no federal tax

Congress may be ready to talk tax reform, but are Americans ready to talk about ending tax breaks that save them money?

By Kay Bell Apr 25, 2011 6:36PM

Most of America's taxpayers finished up their federal tax returns April 18.


But a Washington, D.C., tax think tank says that for tax year 2010 almost half of us don't owe the federal government any income taxes.


Around 45% of U.S. households, or about 69 million, will end up in this envious tax position, say Tax Policy Center researchers. Some of those folks will even get money back from Uncle Sam.


Percentage points-wise, that's slightly fewer folks who don't owe the IRS than in 2009. That year, the Tax Policy Center estimated that around 47% didn't owe income taxes.


Still, a 2% shift won't make much difference to your tax disposition if you looked at line 60 of your Form 1040 (or line 37 of 1040A or line 11 of 1040EZ) and saw what you owed.


Post continues below video.


But before you head off ranting about the huge number of folks freeloading while you're handing over your hard-earned dollars, take a breath.


We're talking only income tax.


Most of the no-tax households paid other taxes, such as state and local income taxes, along with property and sales taxes.


At the federal level, they also forked over FICA payroll taxes to pay for Social Security and Medicare.


Is it really time for tax reform?


So why am I mentioning the non-tax folks now? Because their existence can be useful in talking about comprehensive tax reform.


Congress says it's really, finally ready to have this tough discussion.


But are we taxpayers?


The main reason that so many folks don't owe the IRS or get money back is because they are recipients of the current tax system's welfare -- and I use that term in the broadest possible sense -- structure.


Yes, many in the non-tax group are lower income earners, but many middle-class taxpayers also benefit under our tax code. Maybe we don't end up zeroing out our tax bill, but we definitely use the system to trim our taxes as much as possible.


Another tax policy group, the Tax Foundation, also has looked at who pays -- and gets back -- what amount of taxes from the federal government.


"Over the past two decades, lawmakers have increasingly asked the tax code to direct all manner of social and economic objectives, such as encouraging people to buy hybrid vehicles, turn corn into gasoline, save more for retirement, purchase health insurance, buy a home, replace the home's windows, adopt children, put them in daycare, take care of Grandma, buy bonds, spend more on research, purchase school supplies, go to college, invest in historic buildings, and the list goes on," says Scott Hodge, president of the Tax Foundation in the group's spring newsletter.


"Thanks to the generosity of credits and deductions in the code a record 52 million, or 36% of all filers, pay no income taxes and are off the tax rolls," continues Hodge. "They have no 'skin in the game.' Many Americans today look to the IRS as a source of income thanks to the $100 billion in refundable tax credits paid out each year."


And he also notes that it's not just us individual taxpayers. "Sadly, many companies and industries are now looking to the IRS as a source of income, too," says Hodge, referencing General Electric's ability to get a $3.2 billion corporate tax refund for 2010.


Hodge discussed some of the tax credits that can produce a refund even when the taxpayer has no IRS bill in testimony back in March before the Senate Budget Committee hearing on Distribution and Efficiency of Spending in the Tax Code.


Tax breaks for all


Two popular tax breaks that pay back people who don't owe are the Earned Income Tax Credit (EITC) and the refundable portion of the Child Tax Credit. Each has grown in recent years. (See chart.)


But these aren't the only tax expenditures that benefit many of us to the detriment of the the U.S. Treasury's bottom line. (See chart.)


And that brings me back to my earlier question: Are we taxpayers willing to talk seriously about tax reform?


We all say we want to pay fewer taxes, which usually means we want lower tax rates.


And we also want a system we view as fair, which typically means that everyone, individual and corporate, pays their share.


But to get those lower rates and revamped tax system and still keep the government running in some form, most of us will likely have to give up a current tax break or two that we really, really like.


Even with the recent Tax Day damage still fresh in our minds, I'm not sure we're ready to do that just yet.


More from Don't Mess with Taxes and MSN Money:


Apr 26, 2011 3:59PM
This whole Tax issue is a mess. It is not based on fairness, it is based on politics andself-interest by politicians. Big business pays few taxes because they pay for politician election campaigns, and welfare/low income earners do not pay taxes because they vote for those same politicians. Who pays taxes are those that have the least political clout - small businessmen. So this system is not about fairness. It is about politicians lining their pockets. If we had honest politicians, we would have a fair and uncomplicated tax system. And if we did have that, we would once again have a chance of ruling the world - but for the sake of short-term gain (but long-term loss) the US politicians will continue to walk us down the road to doom and gloom. Sad! (but true!)
Apr 26, 2011 3:50PM
Personally, I think it is outrageous that essentially half of US households pay no federal income tax.  This is totally disgusting.  I'm ok with folks at the bottom of the economic scale paying no tax, but the rest of us should pay, and that includes corporations like GE.  And giving oil companies subsidies - well that is just our totally corrupt elected officials assuring their win in the next election.  Those morons in Congress should all be fired and replaced with people who will truly take this injustice on.  I have always had to pay federal income tax, and have worked for over 40 years.   My daughter and husband make less than $25k/year and they have to pay federal income tax every year.  The tax code is one of the great injustices of our society. 
Apr 26, 2011 2:31PM

Those who DID pay income taxes paid "other taxes" DON'T take a breath, and DO go back to ranting about the huge number of folks freeloading while you're handing over your hard-earned dollars.

Apr 26, 2011 11:53AM
What we need is a very simple last line to all tax returns, a minimum tax line, for both individuals and corporations (now that the Supreme court ruled corporations are individuals and can donate unlimited funds to politicians).  It is very matter how your tax breaks deductions go...even if they get you to $0 tax pay the minimum

5% for individuals/couples filing jointly
10% for corporations.

This way everyone pays something and cannot use loopholes to get themselves to 0, if they do they still pay 5 or 10%

o.k. congress time for you to explain to me why in hell we give G.E. which has moved out to mexico all this money .. R U FOR REAL ?? I SAY THROW THEM ALL OUT IN THE NEXT ELECTION ..  remember they make the laws so they gave this to g.e. and the oil companies .. remember this next time you vote for anyone .. ask a question to yourself - DO THEY TAKE BRIBES ?? OOP'S I MEAN LOBBY MONEY .. IT'S THE SAME . the mafia gives money to a judge or the lobby industry pays off an elected official .. it's the same thing ... only in washington could it be called free speech .
Apr 28, 2011 10:00AM
I feel we should pay a 10% tax on income which is fair for everyone. I realize this hurts the poor but at the least everybody pays the same with no deductions. 
Apr 27, 2011 10:26AM
In the 1950's and 60's, corporations paid 30% of the total income tax to the government.  Today, it is less than 6%, unless you happen to be GE, that got a 3.2 billion dollar refund after paying zero in income tax.  They have the best representation in government that money can buy!
Apr 25, 2011 11:14PM
And why in the hell are oil companies getting multi billion dollar tax breaks, amid record profits???  Corporate welfare is out of control.   How can elected officials sleep at night?  What is it going to take to stop it?  It doesn't seem to matter who is voted in, NOTHING is done.
Apr 27, 2011 11:19PM

We are heading for a tax revolution!

Apr 26, 2011 1:55PM
I think we should stop collecting FICA as a separate tax.  It is misleading to say that 45% pay no income tax when most of them pay this portion.  All the money goes into the general fund, they just issue bonds from one government agency to another.  The earned income tax credit and refundable child credits need to go away.  The lowest tax bracket could be the current FICA, and everything else could be adjusted from there.  Why is there a standard deduction for the primary tax payer?  Eliminate it and adjust the rates downward to compensate for it.  We have so many layers of poo that no one really knows what their tax rates are.  Lets stop lying to ourselves first.

STOP Tax deducations after two babies: and no more EARNED INCOME CREDIT!

How can this society via the greedy deceptive pathetically inept Bureaucratic Government on all levels hint at any environmental issues while NUMBERS USA make pollution and kill Planet Earth...while simultaneously rewarding Heathen Breeding via sperm donor exponentials from womb to tomb on the backs of diminishing working US Citizens of Generations as taxpayers?

Paradox of degredation in action...taking us down and out...

WELFARE wouldn't exist for whores if they knew they were not going to get public extortion for breeding--and the males would have to pay or be castrated!

Plus, the whores coming across from Mexico which is 2/3

'along the US population increase would have no reason to enter the USA because they wouldn't be rewarded.

Our society is taking a dive because there are more births from heathen breeders via sperm donor exponentials than committed adults as husband and wife with something to give not just DNA sperm sampling the Duggars of Tennessee who should have been sterilized after No.2!  and many more like Sullemon; Kate n John; on and on.

  Kansas have 350 of one male and female who came to the USA illegally and has never paid for any of their births and keep getting rewarded on the backs of responsible others.

H E L L is filling up with selfish, ignorant greedy two-leggeds!

May 2, 2011 9:15AM

Everyone who uses the services such as libraries, streets, police officers, fire fighters, schools,parks, and etc need to pay their fair share. This means everyone.  No free ride.

If the government changed the way taxes are paid taking a 10% cut right off the top of

everyone's earnings, then there would be no more 45% not paying but instead 100% participation of each and every American citizen.  Gee whiz think of it Everyone rightfully

becoming a true and contributing member of this big country of ours!!!!!

Apr 25, 2011 8:29PM
I believe most of the working people not paying any taxes just don't make enough money.  Unlike GE that made 15 billion in profit, paid no tax, and got a 3.2 billion tax refund.  If these corporate loop holes are not eliminated, there will be a tax revolution in this country, and I guarantee corporate America won't like the outcome of that. 
Apr 28, 2011 10:14AM
Just because someone doesn't owe at the end of the year doesn't mean that they haven't paid their share of taxes throughout the year. Most people that get a refund, are only getting a portion of taxes back, the amount that was overpaid. Most people don't look at their W-4 forms to see if they are withholding the right amounts each payday. Also, when the IRS owes you money, they are earning interest on it until you ask for your own money back. I highly doubt that 45% of Americans are paying zero taxes. They just gave the government an interest free loan by not adjusting their W-4 form.  As a hard working American, who got a refund of what I overpaid, I say: UH, YOU'RE WELCOME!
Aug 14, 2011 11:41PM
Everyone should have responsibility to pay for our federal government!  You wonder why so people don't know the least thing about politics?  Maybe it is because they have NO VESTED INTEREST!  If they only pay $200.00 a year they should pay something for the amazing privilege of living in the greatest country on the planet.  If you don't want to contribute, move to Somalia and try living without any government. 
Dec 16, 2011 2:16PM

Everyone who uses the services such as libraries, streets, police officers, fire fighters, schools,parks, and etc need to pay their fair share. This means everyone.  No free ride. If the government changed the way taxes are paid taking a 10% cut right off the top of everyone's earnings, then there would be no more 45% not paying but instead 100% participation of each and every American citizen.  Gee whiz think of it Everyone rightfully

becoming a true and contributing member of this big country of ours!!!!!

People are voting this comment up. *SERIOUSLY*


It's a good thing the federal government doesn't pay for libraries, streets, police, firefighters, schools, parks.


45% have a net federal *income* tax of 0. Your *STATE and LOCAL and PROPERTY* taxes pay for all the things you are talking about.

Dec 16, 2011 5:28PM
Message from the 45% of Americans: Relieve us LAB-RAT DISABLED FOLKS from YOUR MENTAL HEALTH DISABILITY/DISEASE and we will all be happy to work. Even for the low-functioning almost illiterates, 15% tax rate from a fast food job is worth more than pay them $10k a year of tax payer money because you need a LAB RAT TO TEST THE PSYCHIATRIC MEDICATIONS.  TURN OFF THE MENTAL NOISE, VISIONS AND PAIN AND WE WILL ALL BE HAPPY TO JUST WORK AND BE LEFT ALONE.
Dec 16, 2011 12:23PM



Title is wrong. Says "Federal Tax" should say "Federal Income Tax"


FICA taxes are federal taxes. And if you're working, you're paying something like 7%.

Jun 22, 2011 11:47PM
People who don't owe paid the appropriate amount of taxes throughout the year. Anyone can do this. I get a refund because I overpaid my taxes not because I am a freeloader. Anyone can do this too. It's all in how W-4s are filed. Income tax was meant for corporations but the Gov't decided to tax individuals labor too. But won't it be nice when we retire and get a paycheck every month because of FICA and other "taxes". (won't we?)
May 4, 2011 3:47PM
Now if the only rich could only pay more taxes, then there could be even more of us who wouldn't have to pay any taxes.  
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