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Think You Pay Too Many Taxes? Almost Half of US Households Pay No Federal Taxes

by Ryan Guina

I just finished paying my taxes, and like last year, I had to send in a check for both federal and state taxes. Part of the reason I owed taxes this year is because I have taxes withheld from my day job, but I pay estimated taxes and self employment taxes on my business income.

I pay enough estimated taxes to avoid any penalties or fees, but I don’t always cover 100% of my tax liability for the year. This usually isn’t a problem though because I don’t owe any fees or penalties and I make sure I keep enough cash in a high interest savings account to cover my tax bill.

Right after paying my tax bill I saw a link to a news story that caught my eye.

Half of US Households Pay No Federal Income Taxes

OK, almost half. The number is actually estimated at 47% (according to Tax Policy Center), but that is close enough in my book.

How can taxpayers avoid owing federal income tax? The main ways are having a low enough income to be exempt from federal income taxes, or qualifying for enough tax credits, deductions, and exemptions.

Not only do some people not pay federal income taxes, but due to the number of credits and exemptions, some people actually receive a tax rebate from the government.

40% of people profit from federal taxes

As if not paying federal income tax weren’t enough, many people actually make a profit from filing their taxes each year.

“The bottom 40 percent, on average, make a profit from the federal income tax, meaning they get more money in tax credits than they would otherwise owe in taxes. For those people, the government sends them a payment. – Yahoo News.

Take this example (same source):

The (recent tax code) changes made it relatively easy for families of four making $50,000 to eliminate their income tax liability.

Here’s how they did it, according to Deloitte Tax:

The family was entitled to a standard deduction of $11,400 and four personal exemptions of $3,650 apiece, leaving a taxable income of $24,000. The federal income tax on $24,000 is $2,769.

With two children younger than 17, the family qualified for two $1,000 child tax credits. Its Making Work Pay credit was $800 because the parents were married filing jointly.

The $2,800 in credits exceeds the $2,769 in taxes, so the family makes a $31 profit from the federal income tax. That ought to take the sting out of April 15.

Must be nice to get paid. :)

What are your thoughts on taxes?

I’ll share my thoughts on the tax system: I Hate Doing Taxes. I don’t mind paying taxes because I know they are necessary for society. My biggest complaint with the tax system isn’t having to pay, rather it is the complexity of the tax system and having to go through the filing process. There are thousands of laws, rules, loopholes, exceptions, and other rules that clutter the books and over-complicate what could be a relatively straight forward process. It is because of this complexity (and my small business situation) that I hired an accountant to do my taxes.

But changing the complexity of the tax system is not a job I am capable of doing, and eliminating the loopholes and vast number of rules would probably put hundreds of thousands of people out of work.

What are your thoughts on the number of households that don’t pay federal income taxes? The US tax system in general?


Published or updated February 28, 2011.
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{ 33 comments… read them below or add one }

1 Hank

Your last paragraph summed it up perfectly. It is not the problem of having to actually pay taxes….it is the complexity of them. Have you ever read Neal Boortz book about the Fair Tax? It is a very interesting idea on how to change the system to a consumption tax sort of like a VAT that most of Europe has.

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2 Ryan

I haven’t read his book, but I lived in the UK for a couple years, so I’m familiar with the VAT system. It is easier to understand and ensures the tax liability is spread among everyone – individuals and corporations alike.

But I don’t think we will see it anytime in the US. It would put hundreds of thousands of people out of work and actually force a people and companies to pay more taxes than they currently pay. I can’t imagine it being a popular option for those in Congress looking for reelection.

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3 fredct

Hank, I haven’t read the book in question, so forgive me if it’s not true of that book… but my pet peeve on that issue is that many people confuse a ‘flat tax’ with a simple tax. A flat tax – with one tax bracket (which is what ‘fair tax’ usually means) – can be just as confusing and complicated and a bracket-system… because the complication comes into play with what counts as income and what’s eligible for a deduction or a credit.

You can keep a multi-bracket system and still make it much more simple by simplifying all the other junk. Most editorials or writings I’ve read on the matter try to conflate the two.

Of course, there are other things you have to be concerned about… if you really wre to eliminate all deductions, then without the mortgage deductions, the value of housing would nice a nose dive, since buyers couldn’t rely on any tax breaks to offset the mortgage costs. And it’d probably be completely politically impossible to eliminate mortgage deductions, among others.

So I agree with the general goal, but I think it’s usually presented dishonestly, and it’s much more complicated than over laid out.

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4 Ryan

Are you familiar with the Value Added Tax (VAT)? It is common in Europe and is added to goods and services at each step of the manufacturing process. Companies can then claim credits if the item is used to produce something else. (Example, a car manufacturer pays VAT on carpeting, then claims a credit because it is used in the manufacture of the car). The consumer and businesses end up paying the total tax bill. It causes the cost of goods to increase, but not prohibitively. However, the argument against it is that it is disproportionate to lower income families because they typically spend a higher amount of their income than those with higher income levels. Overall, it is a much more transparent system than what we currently have.

That said, I don’t see anyone wanting to vote for that when 40% of Americans get paid come tax time and 47% don’t owe federal taxes. Why would they want to start paying federal taxes on what they buy when they don’t pay federal income taxes now?

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5 fredct

Yeah, I am familiar with VAT, at least to the extent you described it… I’ve never lived in Europe to be intimately familiar with it.

Yes, VAT has it’s good and bad points – in order to prevent shifting the tax burden drastically, it would have to come with an annual credit for each person (like the standard deduction & exemptions now). But what percentage of people that would leave paying no taxes or getting much back, I don’t know and is probably highly dependent on the proposal, if indeed a proposal even gets that specific.

I agree with you though that it’d be hard to overhall a system unless large percentage of people see a distinct advantage from it, and that’s a hard case to make in the current environment.

6 Ryan

Oh, I’m not intimately familiar with it – I just paid more at the stores. The wikipedia page is about the extent of my knowledge. ;-)

I’ve heard talk of proposing a VAT with credits based on income, but that means people will pay more in advance, then receive a check after the fact. Or another way would be people receiving a check at the beginning of the year based on the previous year’s income.

Either way, I can’t see half of the people in the US deciding to give up the current situation (not paying federal income tax) and exchanging it for what amounts to a consumption tax.

7 Joseph | kickdebtoff

I think tax systems are complicated all over! whatever the system you look at has it’s up and downside. Do you think though that if the tax system and process was made simple people would gladly pay taxes?

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8 Ryan

Would a less complicated system make people glad to pay taxes? No, I don’t think so. Because it would probably remove a lot of the tax breaks and exemptions they currently receive. I don’t think any tax system that makes people pay more taxes would make them happy.

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9 Money Reasons

I think a flat tax would make it very simple to file your federal income tax return.

I also think a flat tax would have a negative impact in the accounting profession, at least to some extent.

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10 fredct

Didn’t read my post, huh MR? :-) Thanks for illustrating my point though… which is that people constantly conflate the idea of a flat tax and tax simplicity, when in fact they are not the same thing at all. You can have a very complicated flat tax, or a very simple bracketed tax.

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11 Money Reasons

I disagree, but I see where you are thinking.

You’re stating that the simplest of concepts can be made complicated.

Still the reduction/elimination of tax variables would dictate that the tax code would be considerable simplified. Without the elements of tax credits, deductions, and exemptions and so forth… it will be simpler.

So what you are proposing is that it might start out that way, but would evolve into the complicated muck that it currently is today. And if you don’t believe it’s muck, try calculating kiddy taxes manually with capital gains of $3,000… what a joke!

12 Ryan@TheFinancialStudent

I don’t know the answer, but the tax system needs an overhaul. The US can’t keep on spending the way it does when such a large percentage of the country doesn’t pay up.

However, the example of the family of 4 making 50,000 a year has me puzzled. Isn’t 50,000 a bit on the low side for 2 adults and 2 children? Or am I completely off base?

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13 Becky

I work for an accountant doing taxes during the season and it’s quite interesting seeing the varying situations coming through our office.

I read this article (similar to your post) on YAHOO yesterday and it reminded me of my BIL’s question a few weeks ago. He has 5 children and he couldn’t wrap his head around the fact that he was getting more money back than “he paid in” (withheld). I told him, yeah it’s great now, but you know someday we’re all going to have to pay that back! I can see deductions/exemptions/credits taking your tax due down to zero, but that should be it!

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14 Money Reasons

I was aware that almost half of the people in the U.S. doesn’t pay taxes (and that doesn’t bother too much). BUT, I didn’t realize that a lot of them got money back! How can you call it a tax when it really redistributes income? Amazing and very sad.

Does this mean that even if I have no (or very very small) earned income for the year, and if I file, I get those tax credits back as cash?

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15 Ryan

sometimes, yes. It depends on the situation.

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16 sunk

family of four making 50k over the table may need all the funds to support the family.

we are a republic, redistribution is part of the equation

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17 fredct

@ Money Reasons,
“You’re stating that the simplest of concepts can be made complicated.
Still the reduction/elimination of tax variables would dictate that the tax code would be considerable simplified.”

Kind’ve, but not quite. A flat tax simply says that all income is taxed at the same rate.

You can still have an complicated system to determine what counts as “income”. You can still have mortgage and child care deductions, and medical cost exclusions, and credits for energy saving home improvements, and 2% AGI exclusions for miscellaneous deductions and all the rest of it.

Of the 76 lines on the 1040, there is exactly *one* where the tax brackets come into play.

I suppose a flat tax would inherently eliminate a handful of lines where income is taxed at different rates. But there’s no reason you need a flat tax to do that.

What I believe you *mean* to say, is that we should have a tax with no deductions or credits and all the crazy rules surrounding them – or at least a lot less of them. And we shouldn’t have different tax rates for different kinds of income. And I agree. That’s tax simplification.

But you could still have ‘progressive tax brackets’ and it would be just as simple.

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18 K.C.

The tax code is used to influence behavior as well as to collect revenue for the government and re-distribute income. Behavior that Congress wanst to encourage gets deductions, exemptions, and credits. Behavior that Congress wants to discourage gets none of the preceding and may have a surcharge levied against it.

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19 Jarhead

I am one of those 40 percent that had no tax liability and got a good sized return. Not only did I get the above mentioned credits (two children under 17 and the making work pay credit) I also got the Earned Income Credit as well as the First Time Buyers Credit. In all my total refund was about 45% of what my taxable income that was reported on my W-2 this year.

Is it fair probably not. I feel that the government should get rid of all refundable credits and limit refunds to what was paid in. Am I complaining that I got a large refund not at all as it allowed me to pay off 98% of my credit card debt take a vacation before I deploy as well as get some home improvements done that I have been wanting to do.

In all I think the entire US tax Code is completely screwed up and needs to be revamped to help close all the llopholes and hopefully close up the deficit that Mr Obama(and the rest of Washington) is inflating at an exponential rate.

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20 Tyler WebCPA

You’re totally right to take advantage of every thing Washington legally gives out, even if you feel that they shouldn’t be doing so. The government has a long history of using tax legislation to support certain special interest groups, pet projects, and as a means of influencing certain behaviors. Unfortunately their meddling has unintended and perhaps unforeseen side effects, like discouraging savings and productivity.

Even though I’m an accountant and I make money because it is difficult or impossible for many people to prepare their own tax returns because of the complexity of the tax code, I would strongly support a simplification of the tax code because I feel it would make this country stronger and her citizens better off. Although I have to say I’m not at all worried about having to change my profession anytime soon.

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21 Dan

“A democracy cannot exist as a permanent form of government. It can only exist until the voters discover that they can vote themselves largesse from the public treasury. From that moment on, the majority always votes for the candidates promising the most benefits from the public treasury with the result that a democracy always collapses over loose fiscal policy, always followed by a dictatorship. The average age of the world’s greatest civilizations has been 200 years” – author unverified.

No sign of the above slowing down.

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22 fredct

I’m very curious on the ‘sample size’ that ‘unverified author’ is using. Isn’t democracy about 200 years old in it’s modern form? And the same size before that can probably be counted on one hand (the roman empire and, um…)?

P.S. Voting for the candidate who promises tax breaks with no commitment for corresponding spending decreases is simply another version of that same thing.

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23 Dan

The author traditionally given credit for the quote is Alexander Tytler, Scottish lawyer and writer from the 18th century. However, some historians have suggested it may have been penned by 19th century French political thinker Alexis de Tocqueville. Either way, I take the 200 year figure with a grain of salt.

What strikes me is the statement regarding citizens voting themselves “largesse from the public treasury”. This has been occurring for quite some in the U.S., most notably since FDR with the advent of Social Security and again under LBJ with the Great Society. Welfare programs create an inter-generational dependent citizenry and doting, yet controlling politicians. You may hear talk about “social justice” and helping a particular group of people, but underneath it’s a system of buying votes.

Today’s most recent example: the “health” care bill: Promising the world at the expense of private insurance companies and the federal budget. The next example: immigration reform (amnesty). Politicians are silently licking their chops at the thought of millions of new voters from south of the border beholden to them.

I disagree with your postscript. I pay net taxes, so when I vote for the candidate who is promising me a tax break, I’m simply getting back what was originally mine. The 47% mentioned in the article would vote themselves that which was never theirs.

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24 fredct

Well whether its Tytler or Tocqueville, the numeric part of their quote seems to be 200-300 years out of date, and somewhat disproved by this point, no? It’s easy to take the figure with a grain of salt when it’s wrong. How many hundreds of year does it need to be wrong by before being discredited?

It’s funny that you imply the health care bill was ‘buying votes’, implying some high level of popularity, while the argument against it was always – and continues to be – that it is not popular. That argument is oversold as well – polls that did not use leading wording found it to be pretty much split. But I find it highly amusing that you are using the reverse argument. Talk about between a rock and a hard place… you accuse him of simply doing things to buy votes, while he’s simultaneous he’s being accused of defying the will of the people and pushing through something that’s unpopular. My only response is… huh?

Your greatest falsehood however, is saying that it’s “at the expense of private insurance and the federal budget”. I’m sure you full well know the CBO says it’s deficit reducing to the tune of over a trillion dollars. And the stock of private health insurers have not tanked, quite the opposite… and in fact the industry groups have generally supported the reform effort and the specific bill because it will create tens millions of new customer that will actually be a benefit to them. It’s not all sunshine for them, there are certain negatives, but it is by no means “at their expense”.

Next, if you’re such an ideologue that any attempt at reforming the immigration system (in a way that reflects reality) is automatically ‘amnesty’ to you, then you’ve already made up your mind regardless of facts. Sure, health care reform is going to kill grandma, and any kind of immigration reform at all is amnesty… that’s productive dialog.

Finally, I know it’s easy to rationalize voting yourself a tax break (p.s. I myself pay plenty of net taxes as well), but the facts are still the facts. In a deficit environment, if you vote for a candidate promising you a tax break, with no realistic plan to accordingly reduce spending, then you are voting to increase the deficit. “It was mine originally” may be a feel good rationalization, but it’s irrelevant… you are voting to borrow more now and put the debt on the backs of our children. You are voting for your own pocket, not for the good of the country.

As long as you think that’s okay, you have no ground to criticize others to do the same thing. The net financial effect is identical.

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25 Dan

The federal government dishing out benefits resulting in trillions in debt is an excellent example of “loose fiscal policy”. The relevancy of this aspect of the quote stands regardless of the accuracy of the yearly figure that follows.

I agree, the health care bill is unpopular. Even prior to the bill’s passing, there was already a growing number of disgruntled voters. However, I also see evidence of a yea-I-can-get-free-health-care-now thought process throughout the country. It’s folks of this mentality who are being pandered to. In my opinion, they’re large enough in number to partially offset the opposite voters. (And let’s not forget the union exemption from the Cadillac plan tax.)

Not sure where your trillion dollar deficit reduction comes from (Tocqueville? ;) ) – the number is $143 billion according to the CBO’s latest report. But even that number is suspect. The CBO does not consider the adaptive behavior of medical providers and patients in response to the workings of the bill. Also, I see any attempt to project a +trillion dollar budget 10 years into the future as an exercise in futility. Aside from the CBO, I don’t have confidence in the federal gov to efficiently run a program on a scale of such magnitude that affects 1/6 of the economy and creates over 100 new bureaucracies. Especially considering the fed’s stellar fiscal record with S.S., Medicare, Medicaid, etc.

The hc bill imposes an all pre-conditions accepted mandate, and a medical loss ratio (MLR) increase to 85% (meaning 85% of all premium revenue must be spent on claims as opposed to administrative and corporate costs). Add to that the oversight committees on premium hikes and you have tight federal control over both cost and revenue for insurance companies. I’m not saying let’s forget cancer patients, but financial fallout is inevitable with these regulations.

I was referring to the current immigration reform bill being considered – the Schumer-Graham bill which includes a “pathway” to citizenship. In other words, anyone in this country who is here illegally can be made legal. This concerns me because I see millions of purchased votes being added to the 47%.

Reducing taxes does not necessarily reduce government revenue. Lower taxes create an environment conducive to business expansion, investment, job creation, consumerism, and ultimately, more government tax revenue. That’s not just good for my pocket; it’s good for the country. That said, I’m all for reducing spending, too.

Still, taxes must be paid. The 47% either pay net zero or less than zero taxes. For them to be able to vote themselves this system is dangerous – hence my criticism.

Oh, I never said anything about killing grandma.

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26 fredct

> (And let’s not forget the union exemption from the Cadillac plan tax.)

Sorry, but, not true. There is no union exemption from the Cadillac tax. It was discussed, but it was not in the final bill.

> Not sure where your trillion dollar deficit reduction comes from (Tocqueville? ;) ) –
> the number is $143 billion according to the CBO’s latest report.

In the first 10 years, yes. The $1 trillion number ($1.3 trillion really) is for the first 20 years. I understand and agree with your skepticism on the accuracy of numbers with such a long time frame, but when you can be $1 trillion dollars wrong, and still be deficit-reducing, that’s a pretty good starting point. How much more you can really ask for? When’s the last time the Congress passed a bill that had an initial estimate anywhere near that good?

>The CBO does not consider the adaptive behavior of medical providers and patients

and

> I don’t have confidence in the federal gov to efficiently run a program on a scale of
> such magnitude

and

> I’m not saying let’s forget cancer patients, but financial fallout is inevitable with
> these regulations.

I’d really love to hear some specifics. A general sense of foreboding does not make for a particular convincing argument.

Sure, things can go wrong… be it public or private, when aren’t there adjustments that need to be made later? Having worked in private industry for my entire working career now, and things always need to be fixed, and improved, and learn lessons.

Saying it needs to be perfect (or nearly so) before anything can be done, is a way to never get anything done. A baseline lack of trust that nothing ever works is another sure way to make sure nothing ever gets done. Sure, SS, Medicare, Medicaid have their problems… but they also have their substantial successes. Would you really rather we had never had them? If so, you’re in the distinct minority.

> The Schumer-Graham bill which includes a “pathway” to citizenship. In other
> words, anyone in this country who is here illegally can be made legal.

I don’t want to get too much into another topic. Especially since I fully admit that I know little about the bills in the works on immigration. I usually don’t find it worthwhile to put so much time into bills that are so preliminary and will probably have significant changes going forward.

However, a “pathway to citizenship” is not “amnesty”. “Amensty” means “a general pardon for offenses, esp. political offenses, against a government, often granted before any trial or conviction.” If a pathway requires substantial steps and costs and effort, then it is simply not amnesty. I reserve judgment on any particular plan until I hear the details, but to start out misusing a word on day 1 – and a politically and emotionally charged word at that – is not the way to start.

A pathway is not “amnesty” and every government program isn’t “socialism”. Misusing loaded words is not constructive for a national discussion. Or for an individual one.

> Reducing taxes does not necessarily reduce government revenue. Lower taxes
> create an environment conductive to business expansion, investment, job creation,
> consumerism, and ultimately, more government tax revenue. That’s not just good
> for my pocket; it’s good for the country. That said, I’m all for reducing spending,
> too.

I’m sorry, but you’re engaging in the long-discredited theory of ‘self-financing tax cuts’. The idea that tax cuts are so good for the economy that they actually generate more revenue than they lose. It’s a magical little bit of thinking, often used for rationalization, and it’s just not true. Wouldn’t it be so lovely if it was?

Yes, tax cuts do cause economic activity (so does spending), but they don’t pay for themselves. A vote for tax cuts without spending cuts, is just as much a self-interested lining of your own pockets as is spending without paying for it.

Lastly, to get back to the main topic, we both agree that 47% paying no taxes (although the figured it artificially inflated by the recession and the stimulus tax credits) is not a good long term plan. No argument there. It’s your using of the topic to jump off into inaccurate criticisms of the health care bill, as well as a refusal understand that the voting instinct to vote for your own pocketbook is just as strong – and dangerous – on both sides of the political spectrum.

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27 Dan

Union Cadillac tax exemption – not in the final bill, thank you, but almost. AFL-CIO threatened lower voter support if they didn’t get their exemption in the House bill. There were union provisions in the Senate bill passed in December.

CBO doesn’t consider adaptive behavior: Increased access means increased demand – couple that with an already diminished supply of medical professionals, and medical costs rise. Will availability/quality decrease? Will PA’s be given more authority to fill the gap? Will there be new subsidies to generate more medical students or attract foreign doctors? The CBO claims its numbers are middle of the road to account for variation, but then follows that statement with “effects of comprehensive reforms are extremely uncertain”. CBO also states that hc bill policies are “difficult to sustain over a long period of time”, and “budgetary impact could be quite different if key provisions are ultimately changed”. Lots of missing factors and unanswered questions.

Lack of confidence in massive federal program efficiency: I gave you specific examples: SS, Medicare/caid. Also considering the new bureaucracies, massive size and scope, and trillions in total debt, I find it very convincing to reasonably have little to no confidence that this behemoth can stay out of the red. The onus is on your side of the argument to provide specific examples showing fed efficiency with huge programs.

Financial fallout with ins. companies: No specifics in mind – I can’t think of any other industry that has had its business model and handling of cash flow dictated to it the same degree that the hc bill does. When you strip away major aspects of the free-market decision-making abilities of a firm, it’s a reasonable position to predict financial difficulty.

I’m not demanding near perfection for hc reform – just that it doesn’t do more harm than good.

Amnesty: Thank you for the clarification of the word. Through “substantial steps and costs and effort”, the 47% will rise.

Lower taxes/higher revenue: There is not a simple rule for this topic. If the rate is too low, it’s obvious that you don’t collect enough revenue. On the other end of the scale, there has to be a point at which a rate increase stagnates the economy and reduces revenue. I’m not advocating a literal application of the Laffer curve, but I would seek an optimal area in the middle. Otherwise, where’s the theoretical basis to not raise rates through the roof?

As far as “self-interested” voting goes, I would bet that most tax-payers who vote for tax cuts are also strongly in favor of spending cuts and want to see the debt reduced. In fact, most politicians that campaign on tax cuts usually also promise reduced spending (whether or not they make good on the promise).

28 Tyler

Can you clarify the 50% statement? Does this mean that 50% of people filing returns had ZERO net income, meaning they were returned all taxes that had been paid out of their income, or does it mean that 50% of filed returns were given a refund rather than owing money?

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29 Ryan

Tyler, the first one. Almost 50% of people had enough credits and deductions to effectively reduce their federal income tax to nothing, and almost 40% of people actually received more money from the government than they paid in taxes, effectively profiting from the tax breaks, credits, deductions, etc.

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30 fredct

Mostly the first one.

Perhaps it’s me being a bit of a tax geek, but it’s not necessarily ‘zero net income’. You can have a net taxable income > 0 (1040 line 43) for the year, and a net tax for the year also > 0 (1040 line 43). But your various credits add up to more than your net tax, so that you’ve paid nothing today for the year.

It’s definitely not the refund one.

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31 fredct

Replying to Dan…

“Lack of confidence in massive federal program efficiency: I gave you specific examples: SS, Medicare/caid… The onus is on your side of the argument to provide specific examples showing fed efficiency with huge programs.”

The onus that you create appears to be a standard that basically no organization, public or private, could ever meet. Social Security, every year until last year’s ‘great recession’, has been cash flow positive… on a net-basis it is still way in the black (that the money was spent elsewhere isn’t in the SS program’s control). It has provided retirement security for millions, greatly reduced instances of poverty and related deaths in elderly populations. Yet you consider it a failure.

Likewise, the USPS, established in the late 1700s has been very successful for the majority of it’s history. And consider what they offer… if someone told you “I have a service that will come to your home – no matter where you live in the country – hand pick up any note or letter you wish to deliver, and within a week – and often within a day or two – hand deliver it to any other home anywhere in the country… and the price for this is 44 cents” – you’d really consider that a failure? Postal service is the bargain of the century.

Yes, the world is changing out from under their business model and they are struggling to adapt. And that is a damnation of all public programs? Was the end of the carriage makers a damnation of private industry? Is the collapse and nearly collapse without govn’t intervention of a dozen major banks in the past 2 years not a damnation of private industry? How many private companies have made it since the 1700s and not had any problems or lean periods – the standard you appear to be holding the government to? How many hundreds of thousands if not millions have gone out of business entirely?

Speaking of efficiency, your decried Medicare and Medicaid operate with ~2% management overhead. Private insurers? Well over 20% management overhead. Yet you claim private industry is always more efficient?

The fact is, by saying that SS, Medicare, Medicaid, the USPS, etc are failures, you are setting up standards that no private company could ever meet either. You are holding government agencies to a standard of utter perfection in order to pass your ‘threshold’, while doing no much thing in the private marketplace.

“If the rate is too low, it’s obvious that you don’t collect enough revenue. On the other end of the scale, there has to be a point at which a rate increase stagnates the economy and reduces revenue… I would seek an optimal area in the middle. Otherwise, where’s the theoretical basis to not raise rates through the roof?”

I completely agree with everything you said here. I just think we disagree on what makes for the ‘optimal area in the middle’. An increase from 35% to 40%, for instance, I think it still well within that optimal area.

“As far as “self-interested” voting goes, I would bet that most tax-payers who vote for tax cuts are also strongly in favor of spending cuts and want to see the debt reduced. In fact, most politicians that campaign on tax cuts usually also promise reduced spending (whether or not they make good on the promise).”

So this gets back to our main disagreement…

I’m sure that most are. And the same goes the other way around. People who vote for new programs also – by in large – strongly support properly funding them. No one really ever votes to raise the deficit.

I figure your counter point will be that, yes, but they usually want it paid for by others. And that is likely often true… but likewise, people who want spending to be cut, usually want programs cut that help *others*. My argument is simply that there is no particular moral high ground on this argument. One side often wants to pay programs for them by taxing others. The other side often wants to pay for tax cuts for themselves by cutting programs for others.

Do not pretend that there is a morally superior position here.

And one key thing to note… I said a *realistic* plan to cut spending. I can’t recall the last time I hear a conservative campaign get more specific than “I’ll cut waste, fraud, and abuse”. That’s not specific, and basically means they have no idea when or where they’ll cut, or if they do, they don’t want to share.

To get explicit partisan for just one paragraph, the difference between the parties lately has been that for *most* of what they do, the Democrats offset it to remain deficit neutral, the Democrats regularly pass pay-as-you-go rules (while imperfect, are a step in the right direction). The Republicans on the other hand, pass large tax cuts without any offsetting, and also start new entitlement programs (part D), without any offsets. In recent history, at least the Dems have *tried*, which beats not giving a damn when you’re in power (Republicans) any day. Republicans seem to only give a damn about deficits when they’re the minority and sniping on the Democrats.

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32 Dan

It may not be specifically Social Security’s fault that its funds have been plundered through the decades, but that falls under the banner of federal inefficiency. For Medicare/caid, despite the low overhead of only 2%, they’re still heading for a cliff. These programs may be solvent today, but that won’t last long according to projections.

Speaking more generally now, the only standard I’m calling for is a black balance sheet. This is impossible to achieve?

Taken as a whole, I don’t consider the rise and fall of businesses throughout U.S. history as a damnation of private industry. It is through this sometimes painful process that we have almost constant growth of GDP, technology, and standard of living for all. When I see companies go out of business because of poor financials or an obsolete product, that’s the self-cleansing mechanism of the market working properly.

Similarly, I’m not condemning public programs as a whole. I acknowledge the good they have achieved. However, one of the differences with public vs. private is the corrective process. The only check-balance for government programs is the election booth which is very limited in power to affect budgeting. The branches of government change parties over the years, but we still have massive debt from the same entity that all citizens are forced to fund. In this sense, the federal government is held to a lower standard than private industry: Any private company operating its finances like the fed gov would have to shut its doors, as it can only receive revenue from people by choice (government grants, kick-backs, and bailouts aside).

That is what takes away my faith that the health care bill will be deficit and cost-reducing, and self-financing.

I see your point about people wanting cuts in their own taxes and other people’s programs and the reverse. The great ethical imbalance that I see is that regardless of intent or net result, the 47% (there’s that number once again) don’t have skin in the game the same way that the 53% do. They’re not paying into the system.

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33 diane ballou

Money comes out of my paycheck. Sometimes I don’t file for a refund, cause I love my country.

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