Friday, March 19, 2010

Chart of the Day

I repeatedly have shown that the upper income brackets pay the lion's share of Federal taxes, and also that top earners pay higher tax rates. Indeed, I've also demonstrated that total effective Federal tax rates for the top quintile are about the same as in 1981, but dropped for the remaining four quintiles, so that almost half of all non-dependent filers pay no or negative income tax.

The nonpartisan Tax Foundation recently published a chart that includes dependent filers but makes the same point:
Nonpaying status used to be a sure sign of poverty or near-poverty, but Congress and the President have changed the tax laws to pull much of the middle class into the growing pool of nonpayers. The income level at which a typical family of four will owe no income taxes has risen rapidly, now topping $51,000. . .

Figure 1 shows the fluctuation in the number and percentage of nonpayers since 1950 and how that has soared over the past decade. The percentage of tax returns with no liability was fairly low in the 1960s and again in the early 1980s. The recent growth in the number of nonpayers was accelerated by two major tax changes enacted during the 1990s, followed by the Bush tax cuts in 2001 and 2003.

Figure 1

source: Tax Foundation Fiscal Fact No. 214

Entering the 2000s with one in four tax filers owing nothing, the nonpayers pool was supercharged by the Bush tax cuts in 2001 and 2003--especially by the doubling of the child credit to $1,000. By 2004, when the credit expansion was fully phased in, the number of nonpayers increased by 10.5 million, a 32-percent jump in the space of four years.

In tax year 2008, the major tax change that created a record number of nonpayers was the Economic Stimulus Act of 2008, which included a tax rebate of $300 per person, $600 per couple. A family of four was eligible for a rebate of $1,200. These tax rebates boosted the number of nonpayers to nearly 52 million, 19 million more than the number of nonpayers in 2000 when President Bill Clinton left office. This represents a 58.6 percent increase in the number of nonpayers in less than a decade. By contrast, the total number of tax filers grew by only 10 percent during the same period.
Now, a family of four with income up to $50k/year pays no tax. As MaxedOutMama says, "Progressives who believe that the difference between the US and Europe is that the US has lower income taxes for the wealthy are mired in ignorance." True--but that seems to cover most lefties, who refuse to recognize that this trend is unsustainable.


Tom Carter said...

The data shown in the chart amazes me every time I see it. I think the huge number of people who pay no federal income tax (or negative taxes, a mind-warping concept) explains at least part of the reason behind a major problem we have today -- demands for more and more entitlements with no regard for where the money is coming from.

In my view, taxes for everyone should be increased to the point where we can pay our damn bills. Those who don't like that should be willing to support spending cuts that will make tax increases unnecessary. We simply can't go on like this.

Carl said...

Tom: The chart also infuriates me, but I depart from your solution. Tax increases do not necessarily up tax receipts--indeed, receipts climbed substantially following the Bush tax cuts. To be sure, correlation isn't necessarily causation, but tax increases discourage economic activity at the margin, which I will discuss further later this week.