Do Most Americans Really Not Pay Taxes?

NEW YORK (MainStreet) — Shortly after the deadline passed for filing 2010 taxes, the Senate’s Joint Committee on Taxation revealed that a slim majority of Americans (51%) owed no federal income taxes at all for 2009. The claim was picked up by many publications and, intentionally or not, angered some of those taxpayers who found themselves in the remaining 49%.

But now one fiscal policy group is looking to put the number in context by reminding taxpayers that income taxes are just one part of the picture. When other taxes are taken into account, only 14% of Americans actually owed zero taxes in 2009.

While it is true that 51% of Americans did not owe federal income taxes for 2009, this was largely the result of rampant unemployment that led to a steep drop in income for many individuals, according to a report from the Center on Budget and Policy Priorities. At the same time, Congress approved multiple temporary tax credits that year for the unemployed, further reducing or in some cases eliminating their federal tax burden altogether.

These actions led to an unusually high number of individuals owing no income taxes, but that doesn’t mean they pay no taxes at all.

Traditionally, about a third of all taxpayers owe no federal income taxes, but as the center points out, the majority of these (70%) are low-income families who do not earn enough to owe federal taxes for the year, students or the elderly, who are not gainfully employed and have no income to report. Many of those low-income families who owe no federal income taxes still have to pay state and local taxes, as well as payroll taxes on Medicare and Social Security, the center says.

“The reality is that the income tax is one of a number of types of taxes that individuals pay, both over the course of their lifetimes and in a given year, and it makes little sense to treat it as though it were the only one that matters,” the center notes in its report.

In fact, the center cites one study that shows the poorest fifth of households in 2007 (those earning an average of just $18,400) had to fork over 12.3% of their incomes for these taxes, a hefty amount given the little money they have to start with.

As for the 51% who escaped federal income taxes for 2009, the center projects that percentage likely declined in 2010 and will continue to drop in the coming years as the labor market improves.

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