And here’s their evidence:
Of course more folks are e-filing. It’s fast, it’s easy. And with more folks than ever with internet and computer access, it’s to be expected.
But.
And you knew there would be a but.
Here’s my cynical take… You’ll note fewer taxpayers filing generally, down a whopping 12 million this year. There’s a bump in 2008 – certainly attributable to the stimulus. Might it be the case – and I’m just saying – that folks have been encouraged to filing electronically in order to get money back a little quicker.
I’d love to see the data for 2009 returns filed in 2010. I’m betting if you back out the homebuyer’s, that percentage will drop a little. And I’m not a betting girl normally. But I have a hunch on this one.
The good news: nearly 50% of American households (47%, to be precise) won’t pay any federal income tax in 2009.
The bad news: the remaining 50% (or so) will have to foot the bill for everyone.
You can thank (or blame) the new economic recovery package for bumping the percentage of taxpayers who won’t be paying a wee bit higher (about 10%).
But don’t just start pointing fingers at the working poor. While it’s true that the majority of those who are paying no federal income tax this year make below $30,000 annually, up to 10% of households making between $75,000 and $100,000 also qualify. New tax breaks, refundable credits, exclusion of a portion of unemployment benefits and state and local sales tax deductions account for much of the zero income tax for 2009.
It’s important to note that these figures don’t include payroll taxes (Social Security and Medicare). On average in 2009, taxpayers will pay an average of 8.4% of their income in payroll taxes. If you take those taxes into account, only 24% of households will pay no tax.
Payroll taxes often get left out of the “who pays tax?” equation. While it’s true that the top percentage of wage earners pay most of the federal income taxes as a percentage of income, they are also among the lowest in terms of payroll taxes. The top 1% of income earners report 16% of total income but pay less than 4% of payroll taxes. That’s because contributions for Social Security are capped at $106,800. If you make more than that, the overage is not subject to Social Security; this is referred to as a regressive tax (our “regular” income tax system is said to be progressive). Additionally, much of the unearned income in the country (dividends, etc.) is attributable to the very wealthy; unearned income is not subject to payroll taxes.
The lower 60% of income earners report 25% of income but pay about 33% of payroll taxes. Those somewhere in the middle pay the rest (of course).
How does this play out in terms of averages? In 2009, the average federal tax rate paid as a percentage of income in the US is 18.2%. The top 0.1% wealthiest taxpayers will pay an average of 27.9% (not as high as I would have guessed) while the very poorest taxpayers actually “pay” a negative tax (this is due to refundable credits like the EITC and the Making Work Pay credit).
In terms of all federal taxes, and not just income tax, the top 20% of income earners will report more than half of total cash income but will pay a whopping 2/3 of all federal taxes (including income, estate, etc.).
Of course, this data can be manipulated a million different ways (look, I already started!) and you can bet it will continue to be throughout the next election. For now, it’s just something to munch on. You can read the entire Tax Policy Center report here (downloadable as a pdf).
We have a winner! See comments!
Our next tax trivia question is:
For the 2006 tax year, which state’s population filed the fewest number of individual tax returns reporting adjusted gross income of more than $1 million?
Don’t forget: the first correct answer wins free CCH tax prep software.
What’s your guess?
According to the Government Accountability Office, in any given year, at least 60% of US corporations surveyed paid no federal income tax liability for 1998 to 2005 (the years studied). That statistic includes corporations of varied sizes.
If the trends in the survey are accurate, nearly one quarter of large US corporations don’t pay any federal income tax at least half of the time. Large U.S. corporations are those with at least $250 million in assets or gross annual receipts of at least $50 million.
Even more interesting? Nearly three-quarters of large foreign-owned corporations operating in the US reported no tax liability for at least one of the seven years in the study. Foreign-owned corporations are required to file and pay federal income taxes if they are doing business in the US.
So how do so many corporation escape taxation? Deductions and credits. Corporations wipe out their tax liability by using tax credits or net operating losses (NOLs) from excess deductions. NOLs allow a company to deduct losses generated in previous years in a current year. In contrast, individuals, unless reporting business losses on their personal returns, are not allowed to carry forward federal income tax losses. In other words, if a company has a good year, it can offset taxable income from losses it faced in a bad year. If an individual has a bad year, the loss is wiped clean.
The GAO also noted in its report that taxable income in many corporations differed from profits reported to shareholders. Companies that are reporting no taxable income are still reporting profits to shareholders. This is an exercise in accounting, to be sure, but proof to some that the corporate tax structure needs to be fixed – and soon.
Corporate tax issues have been on the political agenda even before the report was released. Amid rising profits for companies and rising costs to taxpayers, both presidential candidates, Senators McCain and Obama, have vowed to close corporate tax loopholes. My bet is that no matter who becomes president, it won’t happen. And I’m not even cynical – just realistic (did you see those numbers?).
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Barack Obama, John McCain, corporate tax, tax, Government Accounting Office
