Not Paying Their Fair Share

The Tax Foundation reports that the number of people filing federal tax returns who owe no tax has almost doubled from 21 percent to 41 percent since 1990. The median income of nonpayers has increased by 40 percent over the last 9 years with the result that a married couple with two children will likely pay no taxes up to an income of $47,000. (See the graph.)

ObamaCare will make this situation worse. The Joint Committee on Taxation estimates that by 2020 the ObamaCare system of refundable tax credits will remove 7.1 to 8.1 million people from the tax rolls. Nearly half of these people will be single with no dependent children. They will include relatively high income families. For example, a 50-year old couple with three children and an income of $90,000 would qualify for a tax credit of $8,035, would not owe income taxes, and would get a $4,319 refund.

Comments (12)

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  1. EJ says:

    I thought lower taxes were a good thing? Shouldn’t libertarians and Grover Norquist acolytes be celebrating this?

  2. Ender says:

    I think that the tax code needs some major overhaul. Imagine the growth and ease of completion if loop holes were removed and the tax code was made more consistent.

  3. Lauren Hayden says:

    Why am I not surprised? All these stats and everyday stories almost make me want to join this non-tax payers party. Hey, if they can get away with it…I can too right? hmmmm…

  4. Buster says:

    I don’t like the idea that a family of four earning nearly $50,000 annually pays virtually no federal income taxes.

  5. Robert says:

    How is the poverty line figured? I’d imagine it would be rather difficult for 4 people to live off of $50,000. If rent+utilities was between $1500-$2000/month, that would come out to $18,000-$24,000 over the course of a year just to put a roof over your family’s head and keep the lights/water on, leaving between $26,000-$32,000 to get 4 people by.

    I’m not saying I agree with so many people enjoying the benefits of society tax-free, it is indeed a problem. Just asking questions.

  6. Linda Gorman says:

    The poverty line is based on work by Mollie Orshansky. It is based on the cost of a minimum adequate diet for families of different sizes in 1963. That number was then multiplied by three to allow for other expenses. (The minimum diet used was the Economy Food Plan, the cheapest of four food plans issued by the U.S. Department of Agriculture. The factor of three was derived from a 1955 Agriculture Department survey.)

    Poor families were those whose yearly income was below the threshold for a family of a given size. She intended that the method be used for research, not to determine eligibility for antipoverty programs.the income needed to purchase a reasonable diet in the 1960s.

    In 2011, median US household income was $50,054.

  7. Greg Scandlen says:

    Robert, a couple of thoughts:

    1. $1,500 to $2,000/mo for housing is WAY too high outside of maybe NYC and SF.

    2. Which leads to the second point — poverty levels are not adjusted for local cost of living. This is foolish since COL varies dramatically from place to place.

    3. It is often pointed out — to no effect — that poverty levels ignore transfer payments and benefits such as public housing and Medicaid enrollment.

  8. Bob Hertz says:

    Linda, this is a valuable post, but where did you get that $4319 refund number?

    The family with a $90000 income and three children will have an AGI of about $70,000 after deductions.

    An AGI of $70,000 results in about $9,000 of federal income tax liability.

    You are correct that that the ACA tax credit will wipe out the liability. But a refund??

    Now to the more important issue…….

    as we sit here today, the great majority of families earning $90,000 have secure employer coverage and will not go near the Exchanges.

    The drafters of ACA assumed less than 20 million persons would go into the Exchanges, and that many of them would be single.

    If this changes — and it could — then the Exchanges will blow up with the cost of tax credits. That I think was your point.

  9. Hoover says:

    As antiquated as the poverty threshold is, don’t forget that Obamacare takes effect at 138% of poverty. Hasn’t the NCPA published information saying that people will actually inflate their income to avoid the ACA?

  10. Linda Gorman says:

    Data are from House Committee on Oversight Staff Report, October 25, 2011. Link is
    Page 10.

    The calculation is for EITC, child care tax credit, and average deduction. These are the Committee’s calculations. I did not check them.

    The Kaiser subsidy calculator says that this family will get an ObamaCare tax credit of $8,308.

  11. Alex says:

    Sounds like tax returns have become a new form of bread to placate the masses.

  12. August says:

    I urge everyone to keep in mind that while many people do not pay income tax they still pay sales and payroll taxes, both of which are regressive.

    I also think the discussion about the arbitrariness of the Federal Poverty Level is important.