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Number of “Nonpayer” Taxpayers Continues Increasing

A new Fiscal Fact (Number 214, including the associated press release) was published today by the Tax Foundation, and reports that a record number of people paid no federal income tax in 2008, “more than a third of all tax returns resulted in complete nonpayment; that is, people got back every dollar that was withheld from their paychecks during the year.” In addition, the study reports that “over 50 million “nonpayers” include families making over $50,000.

According to the study, “Nonpaying status used to be a sure sign of poverty or near-poverty, but Congress and the President have changed the tax laws to pull much of the middle class into the growing pool of nonpayers.”

The number of “nonpayers” averaged 21% from 1950 until 1990. Since 1990, however, that percentage has increased. The Tax Foundation writes:

“Since it was enacted in 1913, the income tax code has contained provisions that exempt low-income workers or greatly reduce their income tax burden. These provisions include the standard deduction, personal exemption, dependent exemption, and the earned income tax credit (EITC). Between 1950 and 1990, the percentage of tax filers whose entire tax liability was wiped out by these provisions averaged 21 percent.

“Since the early 1990s, however, lawmakers have increasingly used the tax code instead of government spending programs to funnel money to groups of people they want to reward. Credits have been enacted to subsidize families with children, college students, and purchasers of hybrid cars, just to name a few of the most well known. In terms of tax revenue, the most significant of these socially targeted credits was the $500 per-child tax credit enacted in 1997. The 2001 and 2003 tax bills doubled the value of the credit to $1,000 and added a refundable component.”

Here’s a graph of the growth from the Tax Foundation’s study:

Sure seems the time has come to reform the tax system!

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