Many in U.S. paying no taxes

April 14, 2011|By GEORGE MICHAEL

Today is Tax Day. Well, usually.

The Internal Revenue Service gave taxpayers a bit of a break this year when it made the filing deadline April 18.

Some of you likely are happy with your refund, while others might be fuming about what you had to fork over.

Last year, a Pew Research poll found that the popularity of the much-maligned IRS had surged more than any government agency over the past 15 years. While most government agencies are declining in the public's opinion, the IRS rating was up 9 percentage points since 1997, according to the poll.

How do we account for the new, positive feelings toward the oft-criticized tax collector? I think the IRS is now viewed as "Mr. Money Bags" by many, based on unexpected refund checks.

The truth is that about half of all U.S. households will have no federal income tax liability this year. The nonpartisan Tax Policy Center reported that 47 percent — or 71 million households — did not owe any income taxes in 2009. The trend is growing, and with the addition of the Making Work Pay tax credit by President Obama, even more will be able to escape paying taxes. In fact, many of these households will get back a lot more in their refund than they paid in income, Social Security and Medicare taxes combined.

And we're not talking about crafty, evil millionaires with shrewd lawyers here. These households are at the bottom of the economic ladder.

According to tax data, someone making a modest $25,000 salary will pay no income taxes and might qualify for a tax refund of more than $10,000 with just three of the available credits. Data provided by Paul Cox of Professional Tax Services in Hagerstown found that a family filing jointly with two children with an income of $30,000 and having $1,000 of income tax withheld would receive a refund of $6,629. A family with $40,000 in earnings and two children who had $2,000 withheld in income taxes would receive a check from the IRS for $4,523.

Granted, these wages are modest and would make it difficult to survive in the current economy. And we should not resent or begrudge someone a nice tax refund, should we? But how much is enough? And what is warranted? Keep in mind, families with children qualify for a number of other support programs that supplement their incomes in addition to these tax benefits.

To reward lower-income workers for going to work and staying off welfare, years ago the Earned Income Tax Credit was created. This was viewed as an incentive of sorts and was accepted as a reasonable thing to do for a small percentage of taxpayers. But, like most federal programs, a program like this can grow into a multi-headed monster that gets out of hand. We are at the point now of a system that threatens to undermine the whole social and political order. There is a significant impact on the sense of expectations and entitlement that have become the mind-set of our nation.

A tax credit is a lot better than a tax deduction. A tax deduction only reduces the amount of income subject to taxes. A tax credit, on the other hand, is a dollar for dollar reduction of taxes owed. With the Earned Income Tax Credit, the Child Tax Credit and the Making Work Pay tax credit, the IRS is not a bad outfit after all.

It needs to be acknowledged that there are a number of credits now in place benefitting middle-class Americans. Tax credits for college tuition paid, for making your home more energy-efficient and for buying a specific type of car are just a few.

A couple filing with $70,000 of income that is not eligible for many of the credits could owe more than $6,000 dollars in income taxes, plus another $5,300 in Social Security and Medicare taxes.

We often hear that the Bush tax cuts benefitted the rich. But how do you give a tax "cut" to the 50 percent of families with no income tax liability? Only by giving them a bigger refund, of course, and then proclaiming they deserve a tax cut, too, as Obama did last year.

In reality, the tax system is heavily tilted against the rich. The top 20 percent of all tax filers pays 86 percent of all income taxes. The top 1 percent pays 40 percent. The percentage of taxes paid by the upper tier of wage earners is even higher since the Bush tax cuts went into effect. Lower tax rates translate into more economic and taxable activity. This is a lesson our political leadership needs to figure out.

What is the impact when someone who paid no taxes stands to reap a significant windfall provided by someone who did? How long can that last? And what kind of mind-set does it generate?

How is it possible to give a tax cut to someone who paid no income tax? Leave it up to politicians, who have found a way to do it in the name of compassion, of course, but more so to curry political favor. For them, job security is No. 1.

George Michael lives in Williamsport. His email address is

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