Exploding, Once Again, the “Non-Payer” Tax Myth

November 7, 2011 at 5:07 pm

Have you heard the one about how nearly half of Americans don’t pay taxes?  Nonsense, as the recent Congressional Budget Office report on income inequality reminds us.

Low- and Middle-Income Households Pay Significant Payroll Taxes

As we have explained, in a typical year around 35-40 percent of households don’t owe any federal income tax. But most of them pay a significant share of their incomes in other taxes — particularly payroll taxes, as the CBO report points out:

  • People in the bottom four-fifths of the income scale pay more in payroll taxes than federal income taxes, on average.  The Tax Policy Center estimates that payroll taxes (including both the employee and employer shares) outweigh federal income taxes for 82 percent of households.  (Most economists agree that workers pay not only the employee share of payroll taxes but the employer share as well in the form of lower wages.)
  • Working-poor and middle-class Americans pay a much larger share of their incomes in payroll taxes than high-income people do (see graph).  That  gap has increased over the past 30 years, the CBO report shows.  In addition, the share of federal revenues coming from payroll taxes has gone up while the share coming from income taxes has gone down.
  • When you count all federal taxes (income, payroll, and excise), even people in the bottom fifth of the income scale are net federal taxpayers, on average.  This group, whose after-tax incomes averaged just $17,700 in 2007, paid 4.7 percent of their incomes in federal taxes that year.

Moreover, these figures don’t consider the significant state and local taxes that virtually all Americans pay — taxes that, like federal payroll and excise taxes, tend to demand more of lower-income people relative to their incomes.

When you count all taxes — federal, state, and local — the bottom fifth of households paid 16 percent of their incomes in taxes in 2009, on average, according to Citizens for Tax Justice.

Let’s put the canard about non-taxpaying Americans to rest once and for all.

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More About Chuck Marr

Chuck Marr

Chuck Marr is the Director of Federal Tax Policy at the Center on Budget and Policy Priorities.

Full bio | Blog Archive | Research archive at CBPP.org

4 Comments Add Yours ↓

Comments are listed in reverse chronological order.

  1. Tony #

    Although it says none partisan, it is clearly liberal because it omits the FACT that when those people file the tax return at the end of the year, they get EVERY DIME they paid in plus, in MANY cases, THOUSANDS more back which means they DID NOT pay ANY TAXES! Sure, they may have had it deducted which is just an interest free loan to the govt. but they get it back and then some. And right now, that is very nearly 50%. And by saying NO TAXES PAID, that means everything from Fed. income tax to sales tax. When they put $350 into the system and get back $5000, that will cover every dollar they spent on all taxes in most cases!

  2. 2

    That 16% total tax paid by the lowest fifth is not that far off from the 17% average income tax paid by the richest 1%. We already effectively have a flat tax. And we already know Warren Buffett’s secretary pays a higher percentage than he does.

  3. Lauren #

    So then, exactly what percentage of Americans do pay taxes?

    All this info is interesting, but it hardly serves as a rebuttal talking point at the water cooler.

    And who are those Americans who don’t pay any taxes?

    • 4

      All Americans pay tax. Whenever you buy gas, clothes, soda, candy, or eat out at McD’s, you’re paying tax. When you pay a phone bill or a utility bill, taxes are paid. The poorest fifth are paying in taxes…maybe not income taxes after they get their tax return refund…but they contribute to their Social Security and FICA (i.e. Medicare, Medicaid) if they work. Remember, Medicare and S.S. are the two biggest expenditures in the Federal Budget. So the poor (the working poor, anyway) pay a significant amount of Federal (and state and local) taxes. Anyone who says otherwise is either misinformed or deliberatly obscuring the facts.

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