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More than half of Americans paid no income tax in 2021
More than half of American households paid no federal income tax last year due to Covid-relief funds, tax credits and stimulus, according to a new report.
The nonpartisan Tax Policy Center estimates that 57% of U.S. households paid no federal income taxes for 2021, up substantially from the 44% before the pandemic.
Howard Gleckman, senior fellow at the Tax Policy Center, said Covid-related job losses, a decline in incomes, stimulus checks and tax credits were largely responsible for the increase.
The expanded child tax credit was a large factor. It substantially reduced "the income tax liability of more than a hundred million households and temporarily turned many from payers of small amounts of federal income tax to non-payers," Gleckman wrote.
With many of the tax programs ending, Gleckman forecasts the number of nonpayers will decline to 42% in 2022 and 38% by 2029.
"We predict it will go back down and remain fairly low relative to historical standards," Gleckman said.
Not just income taxes
Federal income taxes are just a part of the overall tax burden. Since most workers pay payroll taxes, the share of American taxpayers who pay neither payroll nor federal income taxes was only 19% in 2021, slightly higher than the 17% rate before the pandemic. Taxpayers also often pay state and local taxes.
Yet many conservatives and Republican politicians have seized on the soaring number of nonpayers to call for tax reform. Sen. Rick Scott as part of an 11-point "Rescue America" plan, said, "all Americans should pay some income tax to have skin in the game."
In an interview with NPR, Scott, R-Fla., denied he wanted to raise taxes on lower earners. "I don't believe in tax increases," he said.
"I'm not going to raise anybody's taxes, but I want to have the conversation," he said. "We've got able-bodied Americans who are living off of government programs instead of working, and that's caused by these Democrat policies. And that doesn't work. We got billionaires that are not paying, you know, income taxes."
The Tax Policy Center estimated that a plan calling for all Americans to pay at least $100 in income taxes would raise $100 billion in revenue in 2022. Yet such a plan, by nature, would be highly regressive: More than 80% of the tax increase would be paid by households making about $54,000 or less, and 97% would be paid by those making less than about $100,000.
Gleckman said Scott's claims about not supporting tax increases while wanting more Americans to pay taxes are "just silly."
"If you have people paying no tax and you want them to pay more taxes than they're paying now, I don't understand what Scott is saying. The reason people don't pay federal income tax is that they don't make enough money," he said.
There are wealthy taxpayers who pay no federal income tax in a given year, as documented in recent ProPublica articles, and they are likely a small share of nonpayers, Gleckman added.
"The tax code is actually quite progressive," Gleckman said. "There may be some cases where someone with a lot of wealth has little income, or they realize gains and offset those with losses or a charitable deduction. But that's unusual."
As someone deeply entrenched in the field of tax policy, with a comprehensive understanding of the intricacies surrounding income taxation in the United States, I bring forth my expertise to shed light on the recent report suggesting that more than half of American households paid no federal income tax in 2021.
The nonpartisan Tax Policy Center, an organization renowned for its rigorous analysis and unbiased approach, estimates that a significant 57% of U.S. households did not contribute to federal income taxes in 2021. This marks a substantial increase from the pre-pandemic figure of 44%. Various factors have contributed to this shift, and it's essential to dissect them to comprehend the dynamics at play.
Covid-related disruptions, including job losses and income declines, played a pivotal role in the surge of non-tax-paying households. Government interventions, such as stimulus checks and tax credits, were instrumental in alleviating the financial burden on Americans during the pandemic. One standout factor in this scenario was the expanded child tax credit, which notably reduced the income tax liability for over a hundred million households.
However, it's crucial to recognize that federal income taxes constitute only a part of the overall tax burden. Most workers contribute to payroll taxes, and when factoring in state and local taxes, the proportion of American taxpayers who pay neither payroll nor federal income taxes was 19% in 2021, slightly higher than the pre-pandemic rate of 17%.
The article mentions the perspective of conservatives and Republican politicians who view the rising number of nonpayers as a call for tax reform. Senator Rick Scott, as part of an "Rescue America" plan, advocates for all Americans to pay some income tax, emphasizing the idea that everyone should have "skin in the game." However, the Tax Policy Center's estimate suggests that such a plan, while potentially generating revenue, would disproportionately impact lower-income households.
It's essential to address misconceptions, as highlighted by Howard Gleckman, a senior fellow at the Tax Policy Center. Gleckman counters claims by Senator Scott, asserting that the tax code is already quite progressive. He emphasizes that individuals not paying federal income tax generally do so because their income levels are below the threshold. Additionally, Gleckman points out that there are wealthy taxpayers who may not pay federal income tax in a given year, but such cases are uncommon and often involve specific circ*mstances like offsetting gains with losses or charitable deductions.
In conclusion, the complexities of income taxation in the United States extend beyond a simple dichotomy of taxpayers and nonpayers. Understanding the interplay of various factors, government policies, and the progressive nature of the tax code is crucial for informed discussions on tax reform and the broader fiscal landscape.
