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51% of Americans pay no taxes?

June 15, 2011

Yeah, that’s a totally skewed number.

First off, lots more people aren’t paying taxes these days becuase they’re unemployed. In a normal year, estimates are that 35% to 40% of Americans pay no taxes. (source: The Center on Budget and Policy Priorities (CBPP)).

But even that number is skewed too high, because it only includes federal income taxes paid in April of every year. It doesn’t count regular taxes that almost all of us pay all the time, like excise taxes on gasoline, liquor, beer and cigarettes. In addition, that doesn’t include the single most commonly paid tax, the payroll tax.  Even very low-income people like students working a summer job have regular deductions taken from their paychecks and the bulk of those go to the federal government.  Keep in mind we’re completely ignoring that these folks also pay state, county, city and local taxes.

CBPP data shows most of the people who pay neither federal income tax nor payroll taxes are low-income people who are elderly, unable to work due to a serious disability, or students, most of whom subsequently become taxpayers.

One other important thing to remember is how much of these low-income folks’ actual income is requiried to pay their tax debts.  CBO figures show the bottom 1/5th of Americans pay 4% of their total income to service federal taxes, and 12.3% of their income is required to service the total tax burden. That’s especially significant given how little these people make. In 2007, people in the bottom 1/5th income bracket earned an average of $18,400 annually (source Urban Institute-Brookings Tax Policy Center).

Don’t believe everything you hear in the media, especially in an election cycle!

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