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Who Isn’t Paying Income Taxes?

Michael Rainey

Ten years ago, an economist at the Tax Policy Center calculated that 47% of Americans paid no federal income tax. That figure gained a degree of infamy in 2012 when presidential candidate Mitt Romney was recorded telling a group of wealthy supporters that this huge group of non-taxpayers are a lost cause for Republicans, since they will never vote to cut taxes or “take personal responsibility and care for their lives."

"There are 47 percent of the people who will vote for [President Barack Obama] no matter what," Romney said. "All right, there are 47 percent who are with him, who are dependent upon government, who believe that they are victims, who believe the government has a responsibility to care for them, who believe that they are entitled to health care, to food, to housing, to you-name-it. That that's an entitlement. And the government should give it to them. And they will vote for this president no matter what.”

The Tax Policy Center’s Howard Gleckman wrote earlier this week that “the number came to symbolize a class of entitled takers who lived their lives getting government benefits while contributing nothing to society. They were this century’s version of Ronald Reagan’s welfare queens.”

But the number was quite misleading, Gleckman says, as tax experts have long understood. For one thing, as Romney critics argued in 2012, many of those households pay federal payroll taxes as well as state and local taxes. And a new analysis of who pays federal income taxes published in the National Tax Journal provides some data that provides a very different picture of nonpayers (now an estimated 44% of Americans).

Gleckman highlights two details from the report:

  • Those who pay no federal income tax tend to be very young or very old. If you limit the analysis to workers in the prime employment ages of 25 to 55, only 11% pay no federal income tax. By contrast, more than 80% of those 75 and older pay no federal income tax. Nearly half of all nonpayers are retirees living on Social Security, with incomes so low that they are excluded from the tax.  
  • Nonpayment is transitory for the most part. “Among those of prime working age who do not pay federal income tax in any given year, nearly one-third will do so for only one year,” Gleckman writes. “Almost 6 in 10 will be paying income tax within three years, and just one-in-eight are non-payers for a decade or more.”

When it comes to the “entitlements” or benefits decried by Romney seven years ago, the pattern is much the same, Gleckman says, with older Americans being much more likely to receive transfers payments than younger people. At the opposite end of the age spectrum, many younger nonpayers are low-wage workers who frequently move in and out of the labor force due to layoffs and seasonality.

“The 47 percent number came to take on a bigger, symbolic meaning: Nearly half of Americans live their lives taking government benefits but contributing nothing,” Gleckman says. But the new analysis shows that the politically powerful symbolism “simply is false.”

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