Sep 4th 2013
By Jason Bramwell
Thanks to an improved economy and the expiration of most tax stimulus measures, the percentage of Americans who pay no federal income tax is falling, from 47 percent of households in 2010 to 43 percent in 2013, according to new estimates from the Tax Policy Center (TPC).
The "47 percent" estimate gained notoriety during last year's presidential election, as Republican presidential nominee Mitt Romney was caught on camera during a private fundraiser saying there are "47 percent of the people who will vote for [President Obama] no matter what," and adding that, "Forty-seven percent of Americans pay no income tax. So our message of low taxes doesn't connect."
But according to an August 29 blog post by Roberton Williams, Sol Price Fellow at the TPC, many commentators misinterpreted the estimate as saying that nearly half of all households paid no tax at all when, in fact, nearly everyone pays something.
"Even if they don't pay federal income tax, almost all Americans pay Social Security and Medicare payroll taxes, state and local sales taxes, excise taxes, or some other levy," he wrote.
A new TPC whiteboard video explains what is really going on and why the number of people paying no federal income tax is falling. According to the video, 34 percent of Americans will have no federal income tax liability by 2022.
The latest TPC estimates show 43.3 percent of households pay no federal income tax in 2013, while 56.7 percent pay federal income tax. Of the households that pay no income tax, approximately two-thirds, or 28.9 percent, pay payroll taxes, leaving 14.4 percent who pay neither payroll taxes nor federal income taxes.
So who makes up this 14.4 percent? According to the TPC, the highest percentage (9.7 percent) is the elderly, followed by the nonelderly with income less than $20,000 (3.4 percent), and the nonelderly with income of more than $20,000 (1.3 percent).
"The remaining 1 percent mostly benefit from the tax code's many exclusions, deductions, exemptions, and credits that wipe out the income tax they would otherwise owe," Williams wrote.
Even the 14.4 percent of households that pay neither federal income tax nor payroll tax do pay other taxes, according to Williams.
"Most of us bear some of the burden of the corporate income tax through reduced earnings in our retirement and investment accounts or somewhat lower wages," he wrote. "Anyone who buys gas, tobacco products, alcoholic beverages, or airplane tickets pays federal excise taxes. And it's nearly impossible to avoid all state and local taxes – the income, sales, and property taxes that support state and local governments."