Monday, April 18, 2011

45% of U.S. Households Paid No Federal Income Tax For 2010

Happy Tax (Avoidance) Day!

Today is tax day for millions of Americans. However, for a nearly half of American households, this day means nothing at all.

That's because they won't be paying a dollar, or even a dime, to old Uncle Sam.

Due to an array of tax breaks, credits, write-offs and deductions, 45 percent of U.S. households will pay no federal income tax for 2010, according to estimates by the Tax Policy Center, a Washington think tank.

It's little wonder we have such a deficit problem.

Politicians have used the tax code to serve a wide array of special interests, including Americans at virtually all income levels. The wide variety of tax breaks are very popular and generate votes for incumbents, which makes changing the complex and cumbersome tax code very difficult.

Tens of millions of Americans get tax breaks for home mortgage interest, college tuition, having children, making charitable donations and for deducting state and local income taxes, plus sales taxes.

The vast majority who escape paying federal income taxes have low to medium incomes. However, these people still pay Social Security and Medicare taxes, plus property and retail taxes.

As of 2007, more than half of the federal government's tax revenue came from the top 10 percent of earners. And more than 44 percent came from the top 5 percent of earners.

However, the wealthy have access to more lucrative and numerous tax breaks. Though the top rate is 35 percent, millions of wealthy Americans pay far less.

According to 2007 IRS data (the latest year available), the 400 highest adjusted-gross-income households in the U.S. paid an average federal tax rate of just 17 percent, down from 26 percent in 1992.

According to the National Taxpayer Advocate, an independent watchdog group within the IRS, all of the tax credits, write-offs and deductions legislated into the tax code result in a loss of $1.1 trillion to the federal government each year. That's an average of about $8,000 per taxpayer.

Keep in mind, last year's federal deficit was $1.3 trillion.

As I've noted on this page many times before, the federal government doesn't just have a spending problem; it also has a revenue problem.

The wars in Iraq and Afghanistan were never funded. They're being fought with borrowed money. The same is true for the Medicare Prescription Drug Act.

Due to high unemployment and lower incomes and wages, tax revenues have fallen to 15% of GDP, down from the historical average of !8% of GDP. As a share of GDP, income tax revenues are at their lowest level since 1951, when Harry S. Truman was president.

The government must correct this and return to the historical average, plus cut spending, just to reign in the deficit and balance the budget.

Yet, even if this is done, it won't even begin to address the $14 trillion national debt.

But, hey, we've got to start somewhere.

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