The increase in 2008 was due both to jobs lost during the economic recession and also because of the temporary tax measures -- some of which have since been extended -- included in the American Recovery and Reinvestment Act (ARRA), a.k.a., the "stimulus" law. Because these tax cuts were designed to assist low-income earners, they were provided in the form of "refundable credits", a type of credit that a filer can claim above and beyond any income tax liability. In 2009, the Congressional Budget Office estimated that ARRA’s refundable credits would increase outlays by $63.7 billion over its first three years
This is not to say that these filers are paying no taxes whatsoever -- this data only pertains to income taxes. Most of these households pay various taxes including payroll taxes to fund entitlement programs, state and local sales taxes, or excise taxes.
It is also not the case that all of the nontaxable returns were low-income earners. In 2012, for example, 64 percent of the nontaxable returns included an adjusted gross income (AGI) of $40,000 or less (including 6,708 with no AGI) while 40 percent showed an AGI of $100,000 or greater.
Income taxes are the largest source of funding for the federal government, comprising 46 percent of federal revenues. Not only are there more filers who no longer owe any income tax on April 15th, but increasingly more filers are becoming eligible to receive a payment on Tax Day for "refundable" credits. As we noted on our blog
this week, these refundable credits are often in addition to assistance grants and payments from upwards of 80 other federal programs supporting low-income earners. The trend is alarming for anyone concerned about government revenues, deficits, and tax reform.