LJWorld.com weblogs Loyal Opposition
Guess Who is not Paying Taxes
In a not to distant blog a number of the resident left challenged the data that suggested 47% of tax payers pay no federal income tax. My research suggests that that data is reliable and that between 30 and 60 million people do not pay federal income taxes over a long period of time. The following paragraphs expand on that assertion.
One argument asserted by the left is that people in the lower cohort of income earners are transitory and therefore contribute more at other times in their lives. There is some truth in that. But the referenced article (testimony by the Urban Institute) also states that that on average, about 70 percent of families receiving assistance at a given point in time have already received assistance for at least 24 months and 48 percent have received assistance for more than 60 months. If there are 39 million poor that amounts to between 19 and 25 million people with little or no income over the long haul. The lower two tax cohorts number over 100 million. If we excuse these truly poor, just what are the rest paying in taxes?
I used my TurboTax program to calculate actual taxes paid by two notional families. They were assumed to rent, to have two kids and to use the standard deduction. A family at the federal poverty level paid no tax at all (the federal refund exceeded any federal tax paid and all FICA and state contributions.) A similar family earning $44,000 paid no federal income tax, about $1000 to Kansas and $3000 in FICA.
Another argument by the left asserts that while these people may not pay federal income tax they pay state and FICA taxes. This argument equates money paid for the common good with money paid for a personal retirement program. I did a quick bit of research and determined that a working family earning the federal poverty level would earn a social security income of over $14K per year at retirement. They will get back all they contributed, all the employer contributed and the time value of that money in less than 10 years. This outcome is consistent for a family making $44,000 (twice the federal poverty level). It does not seem to me that we should be counting those contributions toward the common pot.
What the math above means is that the effective tax rate (all sources) on the family earning at the federal poverty level is negative. The effective tax rate on the family earning $44,000 (not counting FICA) is less than three percent (paid to the state). A family with an income of $44,000 earns 90% of median US family income. Poverty is defined as income below about $22,000.
In summary those with earned incomes below the median US family income pay almost no federal income tax and little to no state income tax. This grouping numbers somewhere between 30 and 60 million people over a long period of time. Counting FICA as an equivalent contribution to federal income tax is delusional unless the left plans to gut the low end of the program.
IMHO what the above means is that way to many people are not being asked to contribute to the common pot. Certainly we need to be considerate of those truly in need. In fact, I did not even address those who have no income (the 19-25 million first above) and draw average untaxed benefits somewhere between $9 and $18K each.
IMHO, we may be a bit too generous in our largesse and as we retrench we may need to cast our revenue net a big wider than the rich, corporations and the middle class. The half that is not paying taxes are not all poor, in fact, most are not. Just where has the guilt trip originated?