Search This Blog

Thursday, April 8, 2010

Half Pay No Income Tax

In our chapter on economic policy, we talk about the distribution of the tax burden. About half of Americans do not have to pay income tax. Associated Press reports:

Tax Day is a dreaded deadline for millions of Americans, but for nearly half of U.S. households, it's simply somebody else's problem.

About 47% will pay no federal income taxes for 2009. Either their incomes were too low, or they qualified for enough credits, deductions and exemptions to eliminate their liability. That's according to projections by the Tax Policy Center, a Washington research organization.

The vast majority of people who escape federal income taxes do pay other taxes, including federal payroll taxes for Social Security and Medicare, and excise taxes on gasoline, aviation, alcohol and cigarettes. Many also pay state or local sales, income and property taxes.

At The Atlantic, Derek Thompson says that the data pose a problem in civics.

So 50 percent of the country is not contributing to the part of the budget that electeds actually control. With half the country currently shielded from the burden of funding a defense and discretionary budget, there are serious questions to ask about how that changes the politics of taxing and spending.

The even more interesting question that spans economics and morality is whether a tax code that exempts half the country is just. The New Yorker's John Cassidy argues from a moral perspective that wealth is a social creation whose marginal utility declines with income, which supports the philosophy of a progressive tax system.