Last week, there was a flurry of news activity over a report that nearly half of all U.S. households will pay no federal income taxes for 2009.
It was treated as new news. Geez.
Homa Files were all over this as far back as July 31, 2008.
For all the wonky facts & a complete analysis see:
Under Obama, Tax Payers Will be a Minority !
https://kenhoma.wordpress.com/2008/10/28/under-obama-tax-payers-will-be-a-minority/Note: This is the Homa Files post with all-time record for most hits.
I hate to be an “I told you so” (yeah, right) … but hears the AP report … almost 2 years later.
As President Obama likesto say “Elections have consequences”.
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Excerpted from AP: Nearly half of US households escape fed income tax, April 9, 2010
The federal income tax is the government’s largest source of revenue, raising more than $900 billion — or a little less than half of all government receipts .
So, Tax Day is a dreaded deadline for millions, but for nearly half of U.S. households it’s simply somebody else’s problem.
About 47 percent will pay no federal income taxes at all for 2009 … up from 38% in 2007.
Either their incomes were too low, or they qualified for enough credits, deductions and exemptions to eliminate their liability.
In recent years, credits for low- and middle-income families have grown so much that a family of four making as much as $50,000 will owe no federal income tax.
Tax cuts enacted in the past decade have been generous to wealthy taxpayers making them a target for President Barack Obama and Democrats in Congress.
Less noticed were tax cuts for low- and middle-income families, which were expanded when Obama signed the massive economic recovery package last year.
The result is a tax system that exempts almost half the country from paying for programs that benefit everyone, including national defense, public safety, infrastructure and education. It is a system in which the top 10 percent of earners paid about 73 percent of the income taxes collected by the federal government.
The bottom 40 percent, on average, make a profit from the federal income tax … the government sends them a payment. Not just a refund of of excess withholding — so-called “refundable credits”.
“We have almost 50 percent of families who are getting something for nothing.”
Some of the blame goes to former President George Bush. In 2008, he signed a law providing most families with rebate checks of $300 to $1,200.
Last year, Obama signed the economic recovery law that expanded some tax credits and created others.
Obama’s Making Work Pay credit provides as much as $800 to couples and $400 to individuals. The expanded child tax credit provides $1,000 for each child under 17. The Earned Income Tax Credit provides up to $5,657 to low-income families with at least three children.
There are also tax credits for college expenses, buying a new home and upgrading an existing home with energy-efficient doors, windows, furnaces and other appliances.
Many of the credits are refundable, meaning if the credits exceed the amount of income taxes owed, the taxpayer gets a payment from the government for the difference.
Obama has pushed tax cuts for low- and middle-income families and tax increases for the wealthy, arguing that wealthier taxpayers fared well in the past decade, so it’s time to pay up. The nation’s wealthiest taxpayers did get big tax breaks under Bush, with the top marginal tax rate reduced from 39.6 percent to 35 percent, and the second-highest rate reduced from 36 percent to 33 percent.
But income tax rates were lowered at every income level. The changes made it relatively easy for families of four making $50,000 to eliminate their income tax liability.
Here’s how they do it, according to Deloitte Tax:
The family was entitled to a standard deduction of $11,400 and four personal exemptions of $3,650 apiece, leaving a taxable income of $24,000. The federal income tax on $24,000 is $2,769.
With two children younger than 17, the family qualified for two $1,000 child tax credits. Its Making Work Pay credit was $800 because the parents were married filing jointly.
The $2,800 in credits exceeds the $2,769 in taxes, so the family makes a $31 profit from the federal income tax. That ought to take the sting out of April 15.
Full article:
http://finance.yahoo.com/news/Nearly-half-of-US-households-apf-1105567323.html?x=0&.v=1
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Why it matters
The Tax Foundation — a nonpartisan tax research group – has repeatedly warned that
“While some may applaud the fact that millions of low- and middle-income families pay no income taxes, there is a threat to the fabric of our democracy when so many Americans are not only disconnected from the costs of government but are net consumers of government benefits.
The conditions are ripe for social conflict if these voters begin to demand more government benefits because they know others will bear the costs.”
The Homa Files 