Was Mitt Romney correct in a recently surfaced video that 47 percent of the voting public pay no federal income tax? The figure that he cited originates from a 2011 study conducted by the Tax Policy Center. Although the figure in the study is actually 46.4 percent, the basic claim is true — there is a large swath of U.S. citizens who pay no federal income tax whatsoever.
Who are these people, and why are they exempt?
“They’re either paying payroll taxes or they’re the elderly,” Heather Boushey, senior economist at the Center for American Progress, said in an e-mail. “Only 7.9% of households do not pay any federal taxes, but that’s because they’re either students, on disability, or unemployed.”
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These groups may not pay federal income tax, but that's different from paying no taxes whatsoever. “Everyone pays taxes of some sort,” Boushey said. “If you have a job, you pay payroll taxes. If you buy things, you pay sales taxes. And people pay taxes to their state and local governments.”
Other groups who pay no federal income tax include retirees and people earning $20,000 a year or less. “The elderly don’t have to pay income tax on their Social Security benefits, while low income workers qualify for the Earned Income Tax Credit or the Child Tax Credit,” Boushey said.
Read ahead to see the 10 states with the highest number of people who pay no federal income tax. The rankings are from the Tax Foundation and are from 2010, the nonpartisan tax research group’s most recent list.
Eight of the states are considered red, one is leaning toward President Barack Obama and one is a swing state.
Total Returns: 1,283,495
Returns With Income Tax Liability: 712,035
Returns With No Income Tax Liability: 571,460
Mississippi tops the list because it comes in first place in numerous categories. “Mississippi ranks number one for returns with no taxable income, for Earned Income Tax Credit recipients and refundable child tax credit recipients,” Kasprak said.
The state is also “last in average income per return,” he said. “By most measures, it’s the poorest state in the country, so that is why it has so many nonpayers.”
Total Returns: 4,589,611
Returns With Income Tax Liability: 2,639,561
Returns With No Income Tax Liability: 1,950,050
Georgia is home to nearly 2 million households that pay no income tax. This puts it near the top of the list of states where the 47 percent reside.
“Georgia is number two for returns with no taxable income,” Kasprak said. “It’s also fourth for returns receiving the refundable child tax credit.”
Total Returns: 2,102,251
Returns With Income Tax Liability: 1,254,979
Returns With No Income Tax Liability: 847,272
Almost 850,000 Alabama households filed tax returns for 2010 that reflected no liability. According to Kasprak, the state ranks third in the nation for percentage of Earned Income Tax Credit recipients, and the mean annual salary in the state is $39,180, according to the Bureau of Labor Statistics. As a result, more than 40 percent of the state’s residents paid no income tax.
Total Returns: 9,631,252
Returns With Income Tax Liability: 5,879,430
Returns With No Income Tax Liability: 3,751,822
Residents of Florida, the only swing state on the list, aren’t in the nation’s top 10 for the Earned Income Tax Credit or the Child Tax Credit. However, it has the second-highest percentage of returns reflecting income under $50,000 and the sixth-highest percentage of returns with no taxable income.
The state’s large elderly population is a major factor in its high ranking. “Florida has the highest percentage of returns with taxable Social Security of any of these states,” Kasprak said. “That indicates a higher-than-normal percentage of elderly people, who, in general, have less taxable income and are more likely to be nonpayers.”
Total Returns: 1,224,333
Returns With Income Tax Liability: 748,945
Returns With No Income Tax Liability: 475,388
In terms of mean annual wage, Arkansas is in worse shape than South Carolina. Its average salary is $36,340, according to the Bureau of Labor Statistics.
Accordingly, Arkansas also has a higher percentage of tax returns reflecting low annual salaries. “Arkansas has the third-highest percentage of returns with income under $50,000,” Kasprak said.