Tax-filing season began this week. Americans have until April 15 to file their income taxes. There’s been some good news for workers over the last year: Unemployment hovers at 3.9% and average hourly earnings rose by 3.2% on the year in December. And nearly half of Americans don’t owe a dime of federal income tax.
Approximately 76.4 million or 44.4% of Americans won’t pay any federal income tax in 2018, up from 72.6 million people or 43.2% in 2016 before President Trump’s Tax Cuts and Jobs Act, according to estimates from the Tax Policy Center, a nonprofit joint venture by the Urban Institute and Brookings Institution, which are both Washington, D.C.-based think tanks. That’s below the 50% peak during the Great Recession. They still obviously pay sales tax, property taxes and other taxes.
“The large percentage of people who don’t owe federal income tax is a feature, not a bug, of the revenue code,” according to the Tax Policy Center. “By design, the federal income tax always has excluded a significant fraction of households through a combination of personal exemptions, the standard deduction, zero bracket amounts, and more recently, tax credits.”
These workers who won’t owe any federal income tax include single people, married couples filing jointly and married individuals not filing jointly, said Gary Burtless, a senior fellow at the Brookings Institution. For the most part, they don’t earn enough money. However, many people who work and who don’t owe any federal income taxes still give money to Uncle Sam, because money comes out of their paychecks for Social Security and Medicare, he said.
“Many low- and below-average-income families pay more in payroll taxes every year than they pay in federal income taxes,” Burtless said. “This means you have to be careful describing the federal tax liabilities of U.S. families. The U.S. individual income tax is quite progressive, with much heavier tax liabilities as we move up the income distribution and very low or even negative income tax liabilities at the bottom of the income distribution.”
“Either their taxable incomes are below the threshold at which the tax unit’s ’taxable income’ exceeds zero,” he said, “or the taxpayer qualifies for refundable tax credits — such as the Earned Income Credit and/or the Child Tax Credit — that are greater than the amount federal income tax owed, in which case the tax filer receives a tax refund or owes no federal income tax liability. Much more rarely, high-income taxpayers have adopted tax strategies that occasionally eliminate their federal income tax liability.”
All but the top 20% of American families pay more in payroll taxes than in federal income taxes, according to Treasury Department data, cited by the Pew Research Center. “After all federal taxes are factored in, the U.S. tax system as a whole is progressive, according to Pew. “The top 0.1% of families pay the equivalent of 39.2% and the bottom 20% have negative tax rates. That is, they get more money back from the government in the form of refundable tax credits than they pay in taxes.”
On the other hand, payroll taxes are mildly regressive, Burtless said. “Individual earners do not pay any additional Social Security payroll taxes on earnings above $127,200 per year (in 2018),” he said. “The implication is that federal taxes overall are progressive, but they are far less progressive than the federal individual income tax system viewed all by itself.”
“The tax reform will no doubt affect the number of people and families who pay no federal individual income taxes and who pay no net federal income and payroll taxes,” Burtless added. The Tax Policy Center estimates that roughly one-third of workers who pay no federal individual income taxes receive a net refundable credits that covers their payroll taxes, including their employer’s share.
“About 60% of those who pay no income tax will work and owe payroll taxes,” according to Roberton Williams, an associate at the Tax Policy Center. “Most of the other 40% are retirees whose income is too low to owe income tax …Refundable credits make it possible for some low-income households with workers to avoid paying income and payroll taxes. Even so, nearly three-quarters of Americans will end up paying at least one of those taxes this year.”
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“The American Republic will endure until the day Congress discovers that it can bribe the public with the public’s money.” – Alexis de Toqueville
“In other words, a democratic government is the only one in which those who vote for a tax can escape the obligation to pay it.” – Alexis de Toqueville
“A democracy cannot exist as a permanent form of government. It can only exist until the majority discovers it can vote itself largess out of the public treasury. After that, the majority always votes for the candidate promising the most benefits with the result the democracy collapses because of the loose fiscal policy ensuing, always to be followed by a dictatorship, then a monarchy.” ― Elmer T Peterson
why should anyone pay an income tax ? there is no such law. google Joe Bannister. If such a law existed, it would be an improper infringement on your Right to Make a Livelihood secured by Liberty of the 5th and 14th Amendments.
If such a law existed, the government could seize 100% of your earnings and you would be a slave. One such law would turn the nation of We the [sovereign] People into a nation of slaves. It would stand the Constitution on its head. Lawyers who aggressive assert this Right face bogus criminal charges and loss of their license.
The courts/IRS have you sign the tax form under threat of perjury over a caveat of “taxpayer’s name” which they maintain you volunteer to owe an unidentified tax. The income tax is a scam.
The govt and courts disagree with you. Lots of folks in prison to prove that point.
And the govt can seize everything. For instance, if you have an overseas bank acct, and do not tell Uncle about it, you are subject to a fine of 50% of the balance for each year, capped at six years.
They can fine you therefore three times the balance of the acct.
What right do they have to know about your assets, no matter where they are located. Welp, they can and do enforce that law, and they penalize any nation that does not divulge to them that you have an acct overseas.
F#@& Trump’s tax plan.. I for one got screwed. Last year got $3800 of my confiscated labor back but this year I owe $3100 with almost the same income.
Losing the exemption amounts threw me into owing, last year we could get the exemption and itemized deductions and get a return… this year with just the Standard deduction OR itemized only, I ended up getting screwed.
If you a homeowner with kids/ dependents, the new tax sucks.
I told my buddy Ned that the reasons Amazon was able to pay no tax in 2018 would become clearer soon, and it is happening. I mentioned the most common way that no tax was paid was 1) losses in orevious years offsetting profits in current years, as shareholders recover funds already taxed, and 2) profits made overseas that are not subject to US tax being included in the report of total company profits. The media squeals about companies not paying tax on all their profits, but the fact is that profit reporting includes overseas profits but US tax does not. Nor should they.
Here is the current state of affairs:
“US tax code allows money-losing companies to reduce their future taxable income.
Amazon (AMZN) piled up billions of dollars in losses over its two-decade history. It posted $3 billion worth of losses during its first eight years as a public company. It swung between profit and loss since 2003. Its most recent annual loss was $241 million in 2014.
Amazon’s total earnings have easily topped its losses — many times over. But some of Amazon’s earnings came from sales outside the United States, on which Amazon paid either lower or no US taxes. Other earnings were offset by Amazon’s investments in equipment, such computers and robots at its fulfillment centers.
Last year, Amazon benefited from an accelerated tax credit for equipment purchases, which was part of the corporate tax bill passed at the end of 2017. And the company has received research and development tax credits. So Amazon’s federal tax bill came to a net credit of $129 million in 2018 after getting a $137 million tax credit in 2017.
The company said in its most recent annual financial statement that it still has $1.4 billion in federal tax credits available to offset future tax bills.”
So, in 2018 Amazon invested billions in capital equipment that it is unable to depreciate on its profit and loss statement, which leaves it showing a profit, but it gets immediate tax credits for that expenditure.
Effectively what happened is this – Amazon spent X billions of dollars on equipment, but could only deduct a portion of that as expense on their profit and loss reports – ie they spent more in capital than they made in US profit. The law allowed them to take tax credits for those expenditures up front. Hence no tax liability. I for one have long argued that all capital expense should be immediately deductible, and not depreciated, so I have no issue with this at all.
The second major thing that impacted this is that a significant portion of the profits are made overseas. They are not subject to US tax until repatriated, plus tax credits are given for tax paid overseas. A company does not necessarily owe tax on overseas profits, at all, and nothing until the profits are repatriated.
I said this would be part of the issue. If Amazon made all their $10 billion overseas, the media would scream, which they are doing, Amazon made $10 billion and paid no tax! They have a net tax rate of zero! Which is as it should be if all the profits are made overseas. You only get tax on US profits.
I predicted these issue would be why Amazon paid no tax.
There is no link between profit reporting and tax return reporting. Profit reporting includes world-wide sales, depreciation and not capital expenses (balance sheet item not profit and loss), etc. Tax return reporting only includes US sales and expenses and profits, and in this instance allowed for accelerated tax credits on capital items that are depreciated on the financial statements.
All the wailing is essentially for nothing. Amazon did nothing wrong with respect to these major items. The tax credit issue is one that can be debated, but I am in the camp that capital investment should not have to be depreciated, which will spur local investment in capital goods, and eliminate a lot of financial bookwork.
So, here it is again: if a company reports a profit, but no tax, the most likely reasons are 1) carry forward of losses made in previous years allowing investors to recover already taxed investment, and 2) that some portion of the profit was made overseas and thus not subject to US tax.