Who Pays Taxes? Not As Many As You Think

It turns out that nearly half of all Americans don't have to pay any federal income tax. In 2009, 47 percent of all filers paid nothing. It's a number that's gone up significantly in just a couple of years. Robert Siegel talks to Roberton Williams, who's been crunching the numbers at the Tax Policy Institute in Washington. According to Williams, millions escape filing because their incomes are too low or they're eligible for deductions, credits and exemptions.

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ROBERT SIEGEL, host:

Taxes are commonly referred to as one of life's certainties. You know what the other one is. And tomorrow is when Americans pay their federal income taxes. For many of us, the biggest single tax bill we see is at the bottom of an IRS 1040 form. For many of us, but not for all of us.

For many Americans, the Social Security and Medicare taxes take a bigger chunk of their income than the income tax does. And for quite a few Americans, that's a low threshold to clear since they don't pay any federal income tax at all.

Roberton Williams is a senior fellow at the Tax Policy Center, used to work on tax analysis at the Congressional Budget Office. And Mr. Williams' finding has gone viral. Let me ask you, now, how many Americans don't pay any federal income tax? And generally speaking, who are those people?

Mr. ROBERTON WILLIAMS (Senior Fellow, Tax Policy Center): By our estimate, about 47 percent of Americans will not pay any federal income tax for 2009. The people involved in that tend to be families with children, the elderly, low income households, those who either have too little income to pay taxes or who benefit enough from all the deductions, credits and exemptions in the income tax, so they're zeroed out on the bottom line of their 1040.

SIEGEL: And that number, 47 percent, is up from just a couple of years ago. What's the trend? By how much is it up and why?

Mr. WILLIAMS: Well, in 2007, just 38 percent of Americans didn't pay tax. It jumped to 49 percent for 2008, and 47 percent this year, primarily because of the stimulus bills that we've put in place trying to get the economy going again. In 2008, President Bush's stimulus payments sent $600 to individuals, $1,200 to couples, plus a little bit more if you had kids, and that all showed up as a tax reduction when you filed your income taxes.

This year we have the 2009 stimulus, which includes making work pay. Almost every American who works got benefit from that and a few other things that bring down tax bills.

SIEGEL: Now, let's look at this from the other end. If we take the higher income taxpayers, how much of the income tax do the taxpayers with the highest incomes pay?

Mr. WILLIAMS: Well, if we take a look at people with incomes, say, over $500,000. That's about one percent of all Americans. And the total share of taxes that they pay is about 24 percent. They have about 16 percent, 17 percent of income. They pay about half again that much share of taxes.

SIEGEL: And if we looked at, say, the top 20 percent, the top fifth of all incomes in the U.S., who would that be and how much do they pay?

Mr. WILLIAMS: The top fifth starts a little bit above $100,000. That group makes about 56 percent of all income and pay about 70 percent of all taxes.

SIEGEL: So when it comes to the federal income tax, at least, we have a progressive system. The more you make, the more you pay. The less you make, the less you pay. But we pay other taxes, most notably the federal payroll tax. How many Americans pay more in payroll tax, FICA tax, than in income tax?

Mr. WILLIAMS: If you consider both the share paid by the employee and by the employer, which most economists think is borne by the employee, about 75 to 80 percent of us pay more payroll tax than income tax. Only 13 percent don't pay either one of the taxes a far cry from the 47 percent who get out of the income tax.

SIEGEL: And for what percent is there actually a negative income tax? What percent is actually benefitting from, say, the earned income tax credit so that the federal government is giving them money?

Mr. WILLIAMS: We estimate perhaps 40 percent of more of Americans are getting some money back. That's because we've made a number of the credits refundable. So if it takes your taxes down to zero, it can take it below zero and result in a payment.

SIEGEL: Well, Mr. Williams, thank you very much for talking with us about it today.

Mr. WILLIAMS: It was my pleasure.

SIEGEL: That's Roberton Williams, senior fellow of the Tax Policy Center. That's a research think tank here in Washington, D.C. He used to work on tax analysis issues at the Congressional Budget Office.

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