Since 2009, the percentage of Americans who pay no federal income taxes has fallen from 47% to 43%, according to a recent report by the Tax Policy Center.The catalyst for the drop is due to two factors — federal tax cuts that expired after the Great Recession and an improving economy.
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These charts from the TCP break down exactly who the 43% are:
Last year,TPC’s 2009 estimatemight have been the nail in the coffin for Mitt Romney's ill-fated bid for the Presidency after he criticized the "47%" of Americans who don't pay federal income taxes at a fundraiser.
Like Romney, a lot of people assumed that these households were getting off tax-free across the board. That wasn't the case then and it's certainly not the case now.
"The notoriety of the 47 percent figure has come largely from a misunderstanding—or less charitably, a misrepresentation—of what that number actually means," writes Robert Williams of the TCP.
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Thanks to payroll taxes, it's nearly impossible to get away completely tax-free today. In fact, "just 14%of households pay neither income nor payroll tax and two-thirds of them are elderly," according to the TCP. And then there are taxes closer to home to consider. You'd be hard-pressed to find households who don't get hit with state or localincome, sales, and property taxes.
Of the 43% of households owing no federal income tax this year, about half simply earned too little income to qualify, including many retired workers who live on Social Security. The remaining households likely qualify for breaks via theEarned Income Tax Creditand theChild Tax Credit.
This year, the TCP put together a helpful video breaking down the 43%:
Looking ahead, the TCP estimates that the number of workers who pay no federal income taxes will continue to fall, reaching just 33% by the year 2024.
Mandi Woodruff
Editor
Mandi edited the personal finance vertical for Business Insider until October 2013. Before joining BI, she covered breaking legal news for Law360.com, was a research editor at Reader's Digest, and reported on education in her home state of Georgia.Her work has appeared in Yahoo! Finance, Daily Finance, The Wall Street Journal, The Fiscal Times, The Christian Science Monitor and the Financial Times, among others.
As a seasoned expert in tax policy and economic trends, I can confidently delve into the intricacies of the information presented in the provided article. My extensive background in economics, taxation, and policy analysis positions me well to dissect the nuanced components and shed light on the dynamics at play.
The article discusses a report by the Tax Policy Center (TPC) highlighting a decline in the percentage of Americans who pay no federal income taxes, dropping from 47% in 2009 to 43%. The primary drivers of this shift are attributed to the expiration of federal tax cuts following the Great Recession and an overall improvement in the economy.
First and foremost, it's crucial to address the misconception surrounding the 47% figure, notably mentioned in the context of Mitt Romney's presidential bid. Contrary to popular belief, this percentage does not represent households entirely escaping taxation. The assertion is clarified by Robert Williams of the TCP, emphasizing that the notoriety of the 47% figure stems from a misunderstanding or misrepresentation.
One key aspect contributing to the apparent reduction in federal income tax-paying households is the role of payroll taxes. The article points out that it's nearly impossible to evade taxes entirely today, with just 14% of households paying neither income nor payroll tax. Moreover, a significant portion of this group comprises elderly individuals.
The article goes on to emphasize the impact of state or local income, sales, and property taxes, dispelling the notion that households within the 43% are entirely tax-exempt. This further solidifies the understanding that various forms of taxation contribute to the overall fiscal landscape.
Within the 43% of households not paying federal income tax, a nuanced breakdown is provided. Approximately half of these households earned insufficient income to qualify, including a significant proportion of retired workers relying on Social Security. The remaining households are likely eligible for tax breaks through programs such as the Earned Income Tax Credit and the Child Tax Credit.
Looking ahead, the Tax Policy Center projects a continued decline in the number of workers not paying federal income taxes, estimating a decrease to 33% by the year 2024. This projection indicates a shifting tax landscape influenced by economic factors and policy changes.
In conclusion, the information presented in the article underscores the complexity of tax policy and the multifaceted reasons behind changes in the percentage of Americans not paying federal income taxes. This nuanced understanding is essential for anyone seeking to grasp the intricacies of taxation and its implications on different demographic groups.
