On Friday, I posted that the Tax Foundation reported that, in 2008, nearly one in three taxpayers paid no taxes or received every dollar back which was withheld. It’s the highest percentage of nonpayers ever. Think about that for a second. It’s pretty scary.
For 2008, those numbers mean that there were about 51.6 million filers who had no income tax obligation at all. For the sake of comparison, that same year, the Census estimated that there were 112,362,848 households in the US.
There are a mish-mosh of reasons that have gotten us to this point but chief among them: Congress and the President use the Tax Code as the architect for most of their social welfare programs. Politicians have long figured out that voters don’t like paying taxes. But in recent years, they’ve also figured out that they can manipulate the Tax Code to dole out tax breaks to drive policy. Want people to buy new cars? Give them an extra tax deduction. Want people to buy new houses? Give them an extra tax credit. Want people to buy environmentally friendly products? Give them an extra tax credit.
All of these extras add up. And they’ve been adding up quickly over the past ten years. Since 2000, the number of non-payers has increased by 59% (check out this cool graphic) even though the number of filers has only increased by 10%.
When you see the numbers, you may think that all of these non-payers are lower class filers, grabbing up EITC and other traditional “welfare” breaks. But not so. The EITC cost taxpayers $42.9 billion in 2008. A pretty nice chunk of change. But not so much as to completely outshine other tax breaks targeted to middle and upper class taxpayers. The new housing tax credit? It costs taxpayers one billion dollars per month. And the mortgage interest deduction and real estate tax deductions? Those home-buyer incentives “save” taxpayers an astonishing $130 billion per year.
In other words, in today’s economy, tax breaks aren’t just for lower income filers. Middle class (and in some cases, upper class taxpayers) benefit, too. In fact, in 2008, a “normal” married couple with two children could earn up to $56,715 and pay no taxes.
But at what cost?
Government spending is going up, not down. The deficit is increasing. The need for tax revenue is not going away: it’s merely shifting. Fewer than two-thirds of filers pay taxes. That can only last so long. No wonder that taxpayers are calling for a “revolution” along the lines of a Tea Party – or a Coffee Party.
Taxpayers are angry. I’m just not sure that most taxpayers know what it is that they really want (myself included). Clearly, taxpayers want to pay fewer taxes. But realistically, in today’s economy, that can’t happen: we’re paying for a war, we’re talking about funding universal health care and we’re in the midst of a recession with a record number of unemployed. If a shrinking percentage of taxpayers pays fewer taxes, how do the bills get paid? And if we put the kibosh on existing tax breaks, those taxpayers who are paying now will pay even more.
Let’s face it: we like our tax breaks. And Congress and the President have figured out that we’ll vote for whoever promises us the most breaks (even in cases, like the federal estate tax, when they might not even affect us directly). Around this time each year, we all say we want to pay less – but a striking number of taxpayers already do. So I guess the question is: who should pay taxes?