Friday, April 30, 2010

Over One-Third of Filers Paid Zero Taxes in 2008

A study of IRS data published by the Tax Foundation found that out of 142 million tax returns filed in 2008, 51 million paid no federal income taxes - meaning the filers got a refund of every dollar withheld from their paychecks, and often more than that due to 'refundable' credits such as the Earned Income Credit.

The number of returns with zero income taxes has grown from 32.6 million in 2000 to 51.6 million in 2008. That's a 59% increase in tax returns paying zero income taxes during a period where total returns filed increased only 10%.

A record for nonpayers has been set every year since 2002 (30.1 percent), primarily because tax cuts implemented by the Bush administration such as the refundable child tax credit pushed low- to middle-income people off the federal income tax rolls. So much for the Bush tax cuts benefiting the rich and punishing the poor, eh?

The study, Tax Foundation Fiscal Fact, No. 214, “Record Numbers of People Paying No Income Tax; Over 50 Million ‘Nonpayers’ Include Families Making over $50,000,” was authored by Tax Foundation president Scott Hodge. A couple of key quotes from Hodge (emphasis mine):

“Nonpaying status used to be a sure sign of poverty, but thanks to increased use of the Tax Code to deliver social benefits, incentivize behaviors and funnel money to targeted groups, middle-class families have now been pulled into the growing pool of nonpayers. We’re now in a situation where a record number of tax filers are completely disconnected from the cost of government.

“Tax years 2009 and 2010 are likely to produce a number of nonpayers equal to or greater than in 2008 because of Obama's new tax credits targeted at lower- and middle-income taxpayers. As the number of refundable tax credits continues to grow, more and more tax filers are seeing the IRS as a source of income, not something to which taxes are paid."

"With no skin in the game, these nonpayers have little reason to care how much government grows.”

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