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LJWorld.com weblogs Loyal Opposition

Guess Who is not Paying Taxes - Round II

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About a week ago I published some original research that supported the hypothesis that approximately half of all households pay little or no federal income tax. I was denounced as a hypocrite and a liar. This time I present data from the Wall Street Journal (that reactionary right wing propaganda “rag”) that supports the same hypothesis.

The article notes that about 2/3 of the 76 million taxpayers (my number is between 60 and 80 million) that pay no federal income tax actually pay payroll taxes. A red herring put forward by those on the left. Payroll taxes are specifically designated for a specific benefit for the payee – a benefit that in many cases returns more than was paid. They contribute nothing to the “common pot” and all pay them.

There is this argument from the left that these people are all poor. Well, that may be so if the definition of “poor” floats. If we use the government definition, only about 33% of these people are poor (12 - 15% of population). Of course, for some of us defining 76 million people as poor (those not paying federal income tax) is just sensible politics. I guess the remainder of us are all rich and should be shorn.

Some point out that there are many seniors in that set. Absolutely. If you are a senior with only social security as an income, you are by definition poor. Perhaps we should expand social security payments – whoops we cannot afford it. So how can we afford to allow so many non-poor to pay so little?

Is it fair to place the full burden of supporting the operations of the federal government on those making between $50K and $250K (the other half of the population) – households that by any rational definition are not rich. Should not a substantial majority of us have some “skin” in the game?

I sure would like an answer to that question rather than the standard denial of the data or demonization of those who dare to point out this inconvenient fact!

The WSJ article may be found at: http://online.wsj.com/article/SB10001424053111904070604576516703053922830.html?mod=ITP_pageone_2

Comments

George Lippencott 2 years, 7 months ago

camper(anonymous)replies…

George, thanks for the chart! While 46% do not pay income tax, 2/3 of those who do not, pay federal payroll taxes. And further, those who do not pay income tax are mostly those who have deductions and credits for children. This was my argument all along."

Moderate replies: Perhaps it is time to revisit our societal approach to children. Yes, those we have should be well cared for. But should we be encouraging having many??? Once upon a time that made sense. Now, I am no longer sure it does.

You speak to sustainability. One of the biggest drivers is population growth. Each child in the US on average will generate 300 tons of carbon over a lifetime. If we are serious about sustainability perhaps we should not provide tax relief for having children (.more then one).

I am being nickeled and dimed to death with curly bulbs and thermostats setting when the real driver is not only ignored but subsidized.

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heygary 2 years, 7 months ago

http://nation.foxnews.com/welfare/2011/08/24/dobbs-and-oreilly-investigate-welfare-america

You make no mention of Tax Credits for the poor which have risen 356% in the last decade ... see my man Bill's recent Talking Points

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George Lippencott 2 years, 7 months ago

fancy80 and nature nut

The analysis I did was only through an annual income of $44K. I plan to extend that to your range of income. What I supect is that what you are paying is appropriate. The tax take rises steeply once you get past taxation that is driven by the standard deduction. What that means is that the rates on those below $44K are real but the standard deduction leads to no taxes due You all are less protected by that deduction. Blog coming.

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tbaker 2 years, 7 months ago

There's a good reason to attack George and his numbers and charts: He's right. By being right, he is a serious threat to folks who believe in the idea what we need is more and bigger federal government, more borrowing, more massive debt, more spending, and of course the "social justice" crew who believe government should be used as an instrument of plunder to redistribute wealth. When you point out that over half the folks don't pay any taxes, it makes it harder to justify taking even more from the steadily shrinking minority who do. This reality is particularly thorny for folks on the left because one of their own mantras can be turned against them: the one about "fairness." Speaking of, I have a solution that will make everyone happy. Pass the FairTax. Taxing income in any form is dumb for a very long list of goods reasons.

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Carol Bowen 2 years, 7 months ago

Utah has a flat rate with deductions.

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unite2revolt 2 years, 8 months ago

If you eliminate the standard deduction all that means is that everyone would itemize their deductions, without itemized deductions there would be no standard deduction. If you eliminate only some of the available deductions in the tax code it would automatically lower the standard deduction's value by a similar amount. I'll admit that in the years where I have tried to track deductible expenses it has been hard for me to exceed the standard deduction, so it usually works in my favor, but I think there are likely people out there that could get a larger deduction if they itemized but they dont because the standard deduction is easier to claim.

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George Lippencott 2 years, 8 months ago

Since many of the people who pay no income taxes have relatively low incomes it is likely they rent. If you had a home you can only deduct the mortAGE if you itemize your deductions. The standard deduction according to the article is the biggest contribution to not paying federal ioncome taxes. So unlesss you lived in a pretty large house (some people who pay no federal income taxes apparently do) the mortage deduction has no impact.

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unite2revolt 2 years, 8 months ago

I posted on here last time and said that I was part of the non-payers. I'm still in that group. I did not see mention of the deduction of morgage interest payments in the graph but I am assuming it falls in the 7% other category and makes up a fairly large percentage of it. I think what most people miss about the current tax code is that it is designed by the govt to exert influence over the populace's social and spending habits. Its a way of controling behavior. For example the ability to jointly file as husband and wife, the dimenishing return on higher numbers of children for EIC, the morgage interest deduction and education credits. When you talk about eliminating these credits and deductions you are also talking about removing a cash incentive for the populace to behave the way the govt or those that influence the govt desire the populace to behave. Want the people to buy cars introduce a tax credit for new cars, want them to buy houses offer them a deduction, want teachers to buy their own classroom supplies make it deductible, want parents to send their kids to school offer them a tax credit. Want people to stop doing those things? Tax their money when they earn it and before it can be spent, suddenly all that money will start going into hidey holes where the govt can't find it and the economy will seize up more than it already has.

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George Lippencott 2 years, 8 months ago

beatrice (anonymous) replies… George, do you know that Obama is now counting the cost of the wars in Iraq and Afghanistan as part of the budget, while Bush did not?

Moderate responds: Yep!!! I believe the Congress made Bush account on budget for his wars in his last two years.

I hold Iraq as Mr. Bush's war and Afghanistan and Libya as Mr. Obama’s wars

Now historically we have almost always in recent memory paid for our wars with debt. The logic being that we go to war when our critical interests are in jeopardy and that the current generation (the one fighting the war) should not also have to pay for that which supposedly benefits all future generations.

That kind of made sense when wars were not an everyday occurrence. Now that they are perhaps, we should be raising taxes to pay for them. Raising taxes would definitively get the American people involved and maybe slow down the excessive exuberance of our leaders to use force.

That is why you have not seen me beat on Mr. Obama over the debt increases in the last few years related to the wars. Not equal by any stretch of the imagination to the $1T annual increase.

By the by since I do not support all these wars I do not want to pay for them. How about you?? WE are still paying for all the past wars (VA, pensions, health care, base structure, environment, economic displacement ad nausea)

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naturenut 2 years, 8 months ago

I can agree with the data presented based on my own personal situation.

I am by no means poor, and in theory earn more money than any of my fully employed friends, yet without having to look for loopholes, hire an accountant, or use a tax preparation service, I was legally entitled to almost twice the amount of taxes I paid in, and my income without children was over $70,000 in 2010.

What's funnier- I did not even ask for this sort of a refund, but both State of Kansas and IRS did a recalculation and voluntarily sent me checks.

So I donated the money to charity. I feel those of us working with cash to spare should offer our extra to those who have not, and I was raised on welfare. I feel it is my time to pay back what I used in childhood, and I am as confused by our government's ease to just give me more back than friends who are unemployed and out of benefits could get in help. So, what I do is I help them.

Perhaps if others who are getting refunds above and beyond their liability could pass some of it along to those in their lives, we would have a society that needs less dependence on social programs and an overall happier, safe place to live.

In comparison to my childhood poverty, I would have to agree that the rich get richer. $73,000 is not necessarily rich, but growing up on welfare cheese, food bank donations, and whatever else we could get free or on clearance, I am.

It baffles me that they gave me so much more back than what I even paid in, then hear about budget cuts, people losing benefits, and the painstaking choices of which vital services are going to be cut. I could not have been the only one to get back more who could have spared it, and wonder how many of us did something more with it than splurge.

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CountyResident 2 years, 8 months ago

Moderate:

If your claim that you are right on how your dividends were taxed means that they were taxed the same as your salary, you are still wrong. When you go back and look at your tax return, go to Schedule D and you will see that your income tax was computed using a special rate. That special rate, since you had taxable income over $66,000. means your dividends were taxed at no more than 15%. The cut-off for dividends being taxed at ZERO in 2011 is $69,000. This number is indexed for inflation.

If you want to see a table of how dividends are taxed go to "Wikipedia" and you will see that dividends have been taxed at no more than 15% since 2003. This contnues through the extension of the Bush tax cuts which now ends after 2012. You will also note that dividends in the lower tax brackets are taxed at ZERO. This covers the years 2008 to 2012.

I do not agree that business deductions should not be allowed. To tax business gross revenue would not be comparable with the taxing of salaries. Are you saying that an auto dealer could not deduct the costs of purchasing the car or all the other business expenses? A homebuilder could not deduct the cost of lumber, wages, land, etc? What about a grocery strore? They can't deduct the costs they pay for food? What you seem to be talking about is more like a national sales tax.

The social security fund was not shorted by the 2% reduction in payrolll taxes. The US Treasury transferred this amount to make up for the short-fall.

The Stimulus inculded much more than the payroll tax savings. There were various business incentives like rapid depreciation (deduction in the year of purchase) of new equipment purchases, etc.

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George Lippencott 2 years, 8 months ago

CTYRES says: You are wrong on how dividend and capital gains are taxed. Dividends are not taxed at salary rates. The Bush tax cuts sets the maximum tax rates at 15% for both dividends and capital gains. For anyone who has taxable income, after all deductions and exemptions, up to around $66,000. the tax rate is zero. please, look into this and report it correctly.

You may be right. I pay taxes on dividends and capital gains but we make more than $66K . Not sure about the $66K cutoff and will check on Thursday when I get back to the computer with Turbo Tax. Are you sure that the $66K example paid any federal income tax? By the by your first posting did not qualify the $66K cut off and I am right at my tax level which is not of the rich.

Well companies might just move jobs off shore because of the increased cost of American Labor. More unemployment

Yes the employer pays the unemployment insurance tax. If it goes up he might do as above or he might hire people at lower salaries or he might cut benefits. Depends on the market

Yes it would be fair to eliminate business deductions while dropping the rate they pay. Avoids distortions.

Well you litany on taxes is interesting.

Obama agreed to the extension of the Bush tax cuts because he could d not even hold his own party for tax increases.

He did as an element of stimulus reduces payroll taxes - did us no good and reduced the income into the SS pot which is already underfunded to deliver the promised and paid for services.

The stimulus tax cuts were targeted deductions for specific social policies - that’s why I want no deductions for anyone.

Reagan and Bush I raised taxes but at the end of the day taxes rates were lower. Mr. Obama has not raised taxes but he has increased spending (not for stimulus) by about $1T per year rapidly increasing our debt (middle benefitted little). Now you want to raise taxes on the middle to pay for your largess???

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beatrice 2 years, 8 months ago

George: "Should not a substantial majority of us have some “skin” in the game? I sure would like an answer to that question rather than the standard denial of the data or demonization of those who dare to point out this inconvenient fact!"

Beatrice: "I do think everyone who can should have some skin in the game." http://www2.ljworld.com/weblogs/loyal-opposition/2011/aug/11/we-are-tax-laggards/#c1715775

I answered your question in your previous blog. Apparently you missed it.

Is this because I fit your generalized description of "the left" that you over looked it? I mean, how can "the left" say something that contradicts what you think "the left" holds to be true?

From what I can see George, one of the reasons people will attack your blogs are because of your use of a broad brush to describe (more often than not) "the left," usually using select comments that fit your definition, if not always the truth. Here, for instance, you act as if every person on "the left" attacked you personally, and that just isn't the case. Quit dismissing what individuals have to say by describing those with whom you don't agree as "the left," and maybe you wouldn't have to be so defensive when writing a blog entry.

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CountyResident 2 years, 8 months ago

Moderate:

You are wrong on how dividend and capital gains are taxed. Dividends are not taxed at salary rates. The Bush tax cuts sets the maximum tax rates at 15% for both dividends and capital gains. For anyone who has taxable income, after all deductions and exemptions, up to around $66,000. the tax rate is ZERO. PLEASE, look into this and report it correctly.

If companies have demand for their products, they will pay the higher wages. It might mean higher inflation, but it will not lead to higher unemployment.

Increasing unemployment insurance premiums should have no effect on wages. This costs is paid for by the employer. It should act as an incentive to have stable employment.

I don't know what you mean about eliminating all deductions. It would not be fair to eliminate business deductions.

I suggested that student taxpayers be eliminate, because it distorts the number of tax filings that do not show any taxable income.

You keep referring to Democratic Party as though they are the only party that has raised taxes. Did you forget that Regan raised taxes. Aslo, President Obama has lowered taxes. Payroll taxes were decreased 2%. About one-third of the Stimulus Bill were tax cuts. And he agreed to estate tax reductions and extended the Bush tax cuts.

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George Lippencott 2 years, 8 months ago

County Resident says:

!. The standard deduction and exemption deduction are tied to inflation. (The combined standard deduction and exemption in 2000 was $7,200. It is now $9,350.) That is a 30% increase. Since wages have not increased by that amount, the minimum wage should be increased annually to reflect any increases in inflation.

Moderate Responds. OK but would that actually increase income or lead to more unemployment?

  1. Eliminate the Bush tax cuts for all taxpayers. That will require those taxpayers that are now paying ZERO income tax on their dividend and capital gains income to pay income tax and remove them from the "Not Paying Group".

Moderate Responds: Regardless of the Bush tax cuts dividends are taxed at salary rates after a small deduction. Capital gains are taxed at 15%. Salary converted to Capital Gains is also taxed at 15$ and should definitely be taxed as salary – elimination the Bush Tax Cuts does not do that. Impact on the middle is as above for eliminating the Bush Tax cuts. How do you justify increasing taxes on the middle by almost as much as those on the rich?

  1. Increase the premium for unemployment insurance so that the benefits would come only from the insurance premiums and not from funds of the US Treasury.

Moderate Responds: OK but that would impact wages.

  1. Finance all elections with public funds and eliminate political contributions.

Moderate Responds: Ok in principal but how do we make it work??

  1. Remove from the "Not Paying Group" students who are also claimed as a dependent by their parents.

Moderate Responds: Why if they have income. Where their income would be taxed?

  1. Eliminate itemized deductions for all taxpayers. Thus all taxpayers would only be able to claim the standard deduction.

Moderate Responds: How about we eliminate all deductions. Might have to phase that in over some years but it sure would stop the use of the tax code to implement social policy. By the by, the standard deduction is one of those manipulations IMHO

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CountyResident 2 years, 8 months ago

You have pointed out that 46% of taxpayers do not pay federal income tax. The chart you posted shows that 72% of that group don't pay federal income tax because of the standard deduction and the exemption deduction. You seem to dismiss my ideals as to why this is occurring. I'm not sure what you are looking for. If it is a political solution then here are some ideas that will make more of those people taxpayers:

!. The standard deduction amd exemption deduction are tied to inflation. (The combined standard deduction and exemption in 2000 was $7,200. It is now $9,350.) That is a 30% increase. Since wages have not increased by that amount, the minimum wage should be increased annually to reflect any increases in inflation.

  1. Eliminate the Bush tax cuts for all taxpayers. That will require those taxpayers that are now paying ZERO income tax on their dividend and capital gains income to pay income tax and remove them from the "Not Paying Group".

  2. Increase the premium for unemployment insurance so that the benefits would come only from the insurance premiums and not from funds of the US Treasury.

  3. Finance all elections with public funds and eliminate political contributions.

  4. Remove from the "Not Paying Group" students who are also claimed as a dependent by their parents.

  5. Eliminate itemized deductions for all taxpayers. Thus all taxpayers would only be able to claim the standard deduction.

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notaubermime 2 years, 8 months ago

I find it interesting that when Moderate talks about tax cuts as they benefit him, it is the recession that is to blame for low tax revenue, not the tax cuts. When Moderate talks about the same tax cuts as they benefit others, then those people should be pulling their own weight.

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George Lippencott 2 years, 8 months ago

CountyResident says: Businesses shipped higher paying jobs overseas, allowed illegal immigrants to come into this country, and continue to try to bust unions.

Moderate Responds: We cannot begin to change the situation until we can agree on the cause. IMHO substituting Political leadership for business and we would be making progress. Too may in this space want desperately to find a demon they did not elect.

WE are too busy attacking each other to address the real problem. Remember elected officials cut the tariffs that drove jobs offshore, wrote the tax code that favor the rich and fail to uphold our existing laws on illegal immigration. Unions are their own problem. They charge way too much for membership making it increasingly hard for lower paid employees to pay dues while watching the "big wigs" spend lavishly on lobbying that buys little or nothing.

Remember that our leaders of both parties receive large contributions from rich people who buy both parties.

Perhaps if the elected officials worked fro the middle class (of course they claim they do) we might see a difference. However, to create a situation where half the population pays little or nothing toward the operation of our federal behemoth means that people who are not very wealth pay ever-increasing sums to run it. These tend to be independent voters who will vote their survival if the Democrats keep raising their taxes.

Better to do what you suggest but we have to focus on the real problem. It is time for our elites to align with us and not with elites around the world. They all hold you and I in contempt and with ease have us at each others throats.

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CountyResident 2 years, 8 months ago

OK. As the old saying goes 'the rich get richer and the poor get poorer". That is what has happened in this country in the last decade or so. Businesses shipped higher paying jobs overseas, allowed illegal immigrants to come into this country, and continue to try to bust unions. All of this is done to keep wages as low as possible. So you end up with a lot of families that, while may not be called living in poverty, have a very hard time providing their families with proper housing, food and health care.

When looking at who is paying taxes, you say that some like to claim that payroll taxes should also be considered. You argue that payroll taxes should not be considered because "payroll taxes are specifically desiginated for specific benefit for the payee. They contribute nothing to the common pot." If that is the case, then please treat social security benefits separately, when discussing balancing the federal budget. Right now, the social security fund is running a surplus.

Rather than always dwelling on why the rich should not pay more in income taxes, our goal should be trying to figure out how to increase the income of those that are not now paying income tax so that they could properly support themselves and become taxpayers.

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ibroke 2 years, 8 months ago

come on people ! lets hear about paying their fair share!!! who is first?

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