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Who Doesn't Pay Income Taxes?
The Taxpayer's Tab - Vol. 7 Issue 32, September 3, 2015
Earlier this year we reported on IRS data showing that a small share of earners bear the bulk of the income tax burden: the richest 1 percent of income earners in the U.S. paid 38 percent of all income taxes, the top fifty percent paid 97 percent, and the bottom half of earners contributed 3 percent. There are also a number of returns that show no income tax liability. The latest available information indicates that over 35 percent of all returns in 2012 owed zero income taxes. The number of such returns reached as high as 41.7 percent in 2009.

The data NTUF collected from the IRS indicate that while the percentage of nontaxable returns has receded as the economy gradually recovers from the crisis of 2008, the figures are still significantly higher than historical levels. From 1980-1989, nontaxable returns averaged 19.4 percent of all returns. That figure grew to 24 percent during the 1990s, 30.6 percent from 2000-2007, and to 38.3 from 2008 to 2012. 

All ReturnsTotal ReturnsTaxable ReturnsNontaxable ReturnsPercentage of Nontaxable Returns
2012144,928,47293,109,72151,818,75135.8
2011145,370,24091,694,20153,676,03936.9
2010142,892,05184,475,93358,416,11840.9
2009140,494,12781,890,18958,603,93941.7
2008142,450,56990,660,10451,790,46536.4
2005134,372,67890,593,08143,779,59732.6
2000129,373,50096,817,60332,555,89725.2
1995118,218,32789,252,98928,965,33824.5
1990113,717,13889,862,43423,854,70421.0
1985101,660,28782,846,42018,813,86718.5
198093,902,46973,906,24419,996,22521.3
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.
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National Taxpayers Union Foundation is a nonpartisan research and educational organization dedicated to helping Americans of all ages understand how taxes, government spending, and regulations affect them. Through our timely information, analysis, and commentary, we’re empowering citizens to engage in important policy debates and hold officials accountable.

Our findings are provided for educational purposes only and are not intended to aid or hinder the passage of legislation or as a comment on any Member’s or Candidate's fitness to serve.

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