How many will pay no federal income taxes in the next administration?

posted at 8:05 am on October 22, 2008 by Ed Morrissey

Under either John McCain or Barack Obama, millions of Americans will wind up paying no federal income taxes.  According to the Tax Foundation, tax liabilities will drop to zero (or less) for 15-16 million more Americans than now, pushing that to almost half of all filers.  While that may seem optimal to some, if it doesn’t come with significant reductions in overall revenue, it forces fewer people to pay for more government:

The tax code has always contained provisions that reduce the income tax burden for low-income workers, such as the standard deduction, personal exemption, and dependent exemption. Between 1950 and 1990, the percentage of tax filers whose entire tax liability was wiped out by these provisions averaged 21 percent. Since then, lawmakers have expanded credits—such as the earned income tax credit (EITC)—while creating a plethora of new credits, including the child tax credit, the HOPE credit, lifetime learning credit, and the credit for adoption expenses.

Most tax credits can only reduce a taxpayer’s amount due to zero, but the EITC and the child tax credit were also made refundable, meaning that taxpayers are eligible to receive a check even if they have paid no income tax during the year. Those tax returns have become, in effect, a claim form for a subsidy delivered through the tax system rather than a direct payment from a traditional government program like welfare or farm supports.

As shown in Table 1 below, the Tax Foundation estimates that there will be 47 million tax returns with zero income tax liability in 2009 under current law. That’s one-third of all tax returns, and those 47 million tax returns represent 96 million individuals.

Both the McCain and Obama plans would increase this number by expanding existing tax benefits or creating new ones. Senator McCain is proposing one expanded provision—the dependent exemption—and one new credit, a $5,000 refundable health care tax credit. The Obama plan contains seven new provisions, including a new “Making Work Pay Credit,” a “Universal Mortgage Credit,” and a plan to eliminate income taxes for seniors earning under $50,000.1

Taken together, the Tax Foundation estimates the McCain proposals would increase the number of nonpayers by about 15 million, bringing the total number of taxpayers who pay no personal income taxes to 62 million, roughly 43 percent of all tax filers. Almost all of this is due to McCain’s health care credit, which dramatically realigns health care incentives and gives people a powerful motive to buy health insurance. This tax provision has a bigger impact on cutting people’s taxes than any single proposal from either party.

This seems very unhealthy in terms of commitment to federal government.  The government serves all Americans, and except for the poorest among us, we should all be contributing to its maintenance.  Without that kind of connection, the people who pay nothing will have no risk in demanding ever-increasing services and flat-out welfare, which is what Barack Obama’s tax plan really delivers in its seven refundables.  McCain doesn’t give away money to quite the same degree, but it has almost the same effect on taxpayers.

As the second chart demonstrates, the Bush tax cuts did not burden the poor.  It had a similar effect as what both Obama and McCain propose here.  Bush increased the number of people without any federal tax liability by 30%, from 25% to 33% overall.

We need to seriously consider Steve Forbes’ flat tax plan soon if we don’t want to turn the US into a welfare state.  Our tax policies will drive capital out of our markets and into other arenas for investment if the capital class winds up funding all of the federal government, and the electorate continues to demand services for which they don’t pay.  These graphs show a disaster ahead even if we didn’t already face two with Medicare and Social Security, which largely have the same origin.


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maverick muse on October 22, 2008 at 9:06 AM

what’s this with “white”. I don’t think anyone that collects a check form the government should be able to vote. Period. That includes social security, welfare, food stamps, wic, free or reduced lunches in schools, CEO’s getting millions in corp welfare, anyone that gets grants for school, research etc.

I think if you take a handout you should forfeit your right to vote. It would make people think twice about a gov handout and it would allow those that pay for those handouts to control the spending. I also think a consitution amendment should be in place that says the gov can not borrow more than x amount of the GDP unless it is in a time of war. That way the gov can not leverage up 40 -50 to 1. Like the banks and wall street leverage is good but too much is a economy killer.

unseen on October 22, 2008 at 10:51 AM

The one consistant argument for the dem taxing the rich is it is the FAIR thing to do.
If we really want to define what is fair to American wage earners, it would be for all wage earners to pay the same RATE despite your annual income from say double the rate of poverty on up. This, in my view would be a much fairer application of the tax code. The tax paid is monetarily more for the higher income earner but the RATE is the same as the lower income earner. This would make the American Dream much easier to achieve, and would not punished wage earners for moving up the economic ladder with a higher tax RATE. That defines fairness to me.

lwssdd on October 22, 2008 at 10:57 AM

Do people get McCain’s $5k credit automatically, or do they have to show that they’ve spent $5k on healthcare to get it?

If these people are paying for their own healthcare, that’s taking some of the strain off our economy.

McCain’s $5k credit isn’t just free money the way Obama’s “credits” are–right?

daryl_herbert on October 22, 2008 at 11:04 AM

Well it really wasn’t until the women got the vote that welfare started. not a knock on women but they are more compassionate than men. Therefore if you want to do away with welfare you might want to think about getting rid of the women vote.

unseen on October 22, 2008 at 10:45 AM

See? This is exactly what I was saying.

Any efforts to curtail that right scares me – my gender hasn’t had the right for 100 years yet, and I’m sure there are those out there that would see that right gone too.

Anna on October 22, 2008 at 10:14 AM

Anna on October 22, 2008 at 11:11 AM

Ironically, these are the same people who have been screaming that Joe the Plumber is a “doesn’t pay his taxes”.

capitalist piglet on October 22, 2008 at 11:12 AM

I prefer a low % flat tax that everyone pays over a consumption tax like the fair tax idea because I don’t really understand how a consumption tax interfaces with the city,county and state taxes that are already levied on consumption. Like here we have a 8.5% sales tax, if the feds added a 20+% to that like I’ve heard Huckabee propose that would be outrageous. And there would be no control over the increase in the local/state sales tax. And some states have income tax on top of that, so it seems flat tax is the better of the two ideas.

I like McCain’s idea of the $5k health credit and I’d like to see that applied to all the health related expenses, insurance, co-pays, etc. If we could deduct all health related expenses at 100% of outlay as part of the adjusted gross then pay a flat tax, that out to solve both problems.

Texas Gal on October 22, 2008 at 11:14 AM

daryl_herbert on October 22, 2008 at 11:04 AM

Thats the way I understand it. It a up to $5k credit so you have to spend the money to get the credit. I have no problem with that, its way better than the % of adjusted gross formula now that makes it impossible to get any credit unless it for some catastrophic illness.

Texas Gal on October 22, 2008 at 11:17 AM

Anna on October 22, 2008 at 11:11 AM

Just making a statement of fact. Women are more compassionate than men. women do not have the same trouble with the gov helping those less fortunate. The politicians must capture the women vote therefore they must address these concerns. Do I really think women should not vote. Of course not but for those that do not like welfare in any form the fact that women vote causes some of the welfare mentality. Think of the children is a great cry to get women to vote for the dems.

it really doesn’t matter anymore anyhow. After this election we will never have a free fair vote again. Amnesty is coming, open borders, acorn unleashed. the ballot box will be stuffed with enough votes to make sure that conservatives will never again win an election.

unseen on October 22, 2008 at 11:17 AM

I’ve read the whole comments thread so far, and I think everyone has missed a critical point, with regards to the current tax system and alternatives (e.g., flat tax).

My point here is, politicians of both stripes use the current tax code as a means to grant political favors. We (the general electorate) are evidently too stupid, en masse, to either see it for what it is, much less do anything about it.

As someone pointed out earlier, the first income tax code was essentially flat. Over time, we allow politicians to alter that code to buy off certain constituencies, and so it eventually becomes byzantine, confusing to all except the few professionals who, by the nature of its complexity, must devote their entire careers to understanding the tax code.

Since the likelihood of the general public rising up and rejecting the current tax code wholesale is virtually zero, we are not only stuck with it, but we are also stuck with the eventuality that it will shift wholesale from a tax code to a payoff code (that is, when over 50% of the public has no tax liability).

A truly fair system would be a VAT, fixed percentage by the federal government, whereby only sales of goods were taxed and fixed percentages went to the state and local municipality in which the purchase originated.

But there is no such thing as fair in love and politics.

-Wanderlust

Wanderlust on October 22, 2008 at 11:19 AM

daryl_herbert on October 22, 2008 at 11:04 AM

McCain’s health care plan takes the already EXISTING health care credit that business’s get (for funding your health care) and give it to you, the taxpayer.

Yes, most will loose business “given” health care… which is NOT given… its a part of your compensation package.

What SHOULD happen is that your WAGES should incease by the amount the company currently pays for your healthcare, and you use that money to get your own insurance, and use the tax credit to help fund it (and yes, it only covers costs… so no health insurance, no credit).

What it does is take the Health insurance from the company, and gives it to you…

Now, as someone who runs and owns a small business, this would HELP my employees, as I pay my guys as self employeed contractors, and they pay their own health insuranace… neither I, nor my contractors currently get any help from the Gov on this front… while larger companies do.

Romeo13 on October 22, 2008 at 11:22 AM

One other issue that is constantly left out of tax arguements, is the Children Tax credits, and deductions…

Now, I say this as a parent myself… but…

Why should I pay LESS in taxes than someone who has no children, considering that we use THREE TIMES the amount of societal resources as they do? We use the public schools. We have three times the need for Police, Fire… and now that my kids drive, roads.

From a straight fairness perspective, we should be paying MORE in Taxes, not LESS… as we use more of this countrys resources.

Not advocating, just throwin it out there….

Oh, and the No Representation without Taxation arguement is not supposed to disenfranchise Voters, but to make them make a choice as to how we want our society to run.

Do we allow them to vote themselves a free ride by voting for Socialistic Politicians? Or, do we make them act like adults and pay their own way….

Romeo13 on October 22, 2008 at 11:31 AM

i like Starship troopers idea. If you don’t serve you don’t vote.

unseen on October 22, 2008 at 8:57 AM

Tell that to my disabled friend.

Dark-Star on October 22, 2008 at 12:10 PM

Romeo13 on October 22, 2008 at 11:31 AM

As a childless taxpayer, I appreciate what you’re saying – I’ve thought about that too. Public schools in our state receive so much of our money – the state budget pie chart that comes out every election looks like it’s almost completely theirs. And every election, they clamor and scream for more.

I believe, though, that the argument some would make is that one of the things our government does is to encourage people to raise families, to perpetuate our way of life. Raising a family is very hard work, and it’s very expensive, so families get the breaks. And I guess that makes some sense to me. As someone who has chosen not to take that job on, I’m okay with it.

capitalist piglet on October 22, 2008 at 12:11 PM

nseen on October 22, 2008 at 10:51 AM

I agree with what you said on some points. But, my husband just paid the IRS 4,000.00 for Social Security on our taxes. I believe he has the right to vote. Even though Social Security is going up. Then so does the amount you have to pay. It is not welfare. He earned that money for working his butt off for years. Welfare, different story.

sheebe on October 22, 2008 at 12:12 PM

unseen on October 22, 2008 at 11:17 AM

Generalizations suck. I know plenty of women who have limits on their compassion, including myself. Yes, I feel sorry for the less fortunate, but I don’t like government welfare. I’d venture to say it’s the liberal women who are more prone to the welfare mentality, which is what, roughly half of all women?

I guess the good thing here is that they don’t consider conservative women to be real women anyway.

Also, about child tax credits… yes, we use the roads, schools, parks. And we pay for them, just like everybody else. I do have an issue with childless people having to pay for schools, but I’m not sure of a solution for that. But my family of 2 adults and 3 children do not use the roads any more than 2 adults would – we all travel in one vehicle. I go to parks maybe 5 times a year, but I pay just as much as the people down the street that go 5x a week. Besides, most of these things are paid from local/state taxes, not federal, and we only get the tax credit from our federal taxes.

As my husband puts it though, we think of the tax credit as a payment for raising the next generation of tax-paying Americans. With our birthrates declining, that’s pretty much what it is anyway.

Anna on October 22, 2008 at 12:40 PM

sheebe on October 22, 2008 at 12:12 PM

yeah but if people couldn’t vote when they start getting a check then ss would most likely become private.

unseen on October 22, 2008 at 12:43 PM

there are child tax credits because the gov thinks having children is a good thing.

Yes women maybe 50/50 but men’s views on welfare is more like 85/15.

unseen on October 22, 2008 at 12:45 PM

Tell that to my disabled friend.

Dark-Star on October 22, 2008 at 12:10 PM

What because he is disabled he can’t serve in some way?

unseen on October 22, 2008 at 12:47 PM

What because he is disabled he can’t serve in some way?

unseen on October 22, 2008 at 12:47 PM

Long story short: badly deformed arms. He can use a computer – slowly – and that’s it.

Dark-Star on October 22, 2008 at 12:53 PM

yeah but if people couldn’t vote when they start getting a check then ss would most likely become private.

unseen on October 22, 2008 at 12:43 PM

Hmmm, Didn’t think of that….. I feel that some people that keep popping out children should be penalized. Especially if their income cannot support all those kids. Also, there are a lot of people that have no right go have children. They have kids because they can. Not because they want children. Also, there are to many illegals taking welfare, food stamps and wick programs that do not deserve it. And Medical too.

sheebe on October 22, 2008 at 12:54 PM

Anna on October 22, 2008 at 12:40 PM

Your post is good, a lot of great points. Why should childless people and people that did their job and have adult kids? We shouldn’t have to pay for schools! I am glad I am not the only one that feels that way.

sheebe on October 22, 2008 at 1:04 PM

Even the poorest needs to give a bit in taxes. Keeps everyone equal.

Tim Burton on October 22, 2008 at 1:07 PM

Obama’s idiotic comeback yesterday:
“Those 40% who don’t pay federal income tax still have to pay other taxes – state, sales, etc.”
which he said it with a smirk and audience laughing.

Well, if you don’t want to pay those, take it up with your own state then.

What Obama is porposing concerns the federal income tax part, he wants to tax ‘the rich’ for more to spread the wealth and rightly being called out as ‘income distribution’ scam.

To think, in economic downtime, more people trust Obama/Dems to fix the problem for them!

Sir Napsalot on October 22, 2008 at 1:19 PM

I think the best answer is that only people who actually pay taxes can vote – at all levels. Otherwise you have people collecting what amounts to bribes for votes, paid for by the people who pay taxes.

Common Sense on October 22, 2008 at 1:20 PM

What Obama’s intentions ultimately are is to do away with State’s Rights by increasing the authority of the federal government. Eventually that will begin to turn the red states purple then blue. So not only during the next 4 – 8 years under a Democratic Executive and Legislature, followed by a left leaning SCOTUS, the federal government will have a stronger role over the States purview and influence of the electorate which is why he wants to dip into funding things like teachers, law enforcement, etc. at the local level which will increase the union support, that along with the card check will eventually have an effect on the red states.

Texas Gal on October 22, 2008 at 1:39 PM

Well it really wasn’t until the women got the vote that welfare started. not a knock on women but they are more compassionate than men. Therefore if you want to do away with welfare you might want to think about getting rid of the women vote.

unseen on October 22, 2008 at 10:45 AM

As I woman I do NOT take offense at that bcs I think you may have something there. Women tend to do things more spontaneously & emotionally than men.
Like it or not ladies, we know it’s not just PMS!
Most women I know are stupid, emotionally inept creatures who do not think past themselves.
I realize many men are the same. I just seem to notice it more in my own sex.
That must make me a self-hating sexist pig?

Badger40 on October 22, 2008 at 1:41 PM

A truly fair system would be a VAT, fixed percentage by the federal government, whereby only sales of goods were taxed and fixed percentages went to the state and local municipality in which the purchase originated.

Bravo. I agree.

Badger40 on October 22, 2008 at 1:44 PM

Hmmm, Didn’t think of that….. I feel that some people that keep popping out children should be penalized. Especially if their income cannot support all those kids. Also, there are a lot of people that have no right go have children. They have kids because they can. Not because they want children. Also, there are to many illegals taking welfare, food stamps and wick programs that do not deserve it. And Medical too.

sheebe on October 22, 2008 at 12:54 PM

Again if there were no food stamps, no wic etc would anyone care how many kids a couple has? the fac tthat the governments gives these checks makes this country a country of busy bodies. Get rid of the welfare programs and freedom and common sense comes back. When big daddy isn’t there people must think and act for themselves. Most of our problems can be traced back to this problem. Therefore if you disallow those that get benifits from voting most of these problems would go away.

unseen on October 22, 2008 at 1:56 PM

Screwed as a country yeah, but it’s not particularly the remaining minority of taxpayers who are screwed. Read Atlas Shrugged. When those remaining few get tired of supporting the looters, and simply stop, there’s nothing the looters can do about it. Slowly, producers/investors will remove their productive capacity from the economy. That’s what Ed is warning about.

Adam Smith’s invisible hand works in both directions. I don’t think the libs realize that.

JiangxiDad on October 22, 2008 at 8:27 AM

Yep. If Obama wins, I plan on earning NO money in 2009 so I can reap all this free stuff.

Plus, throw in a huge credit pyramid scheme and I am doing just fine.

With Obama, I won’t need to work anymore.

No income by the rich, no tax revenue. High captial gains taxes, no business investment with money moved to other countries, etc. Huge deficits dwarfing anything we have ever seen along with the national debt sharply going up as a % of GDP. Throw in a new conflict overseas needing the military to respond. Russia WILL annex Ukraine without a fight next year of 2010 BEFORE there is a chance to get them in NATO.

An Obama presidency is simply Bush 3 on steroids.

If Sarah runs against an incumbent Obama in 2012, she can hammer him as Bush 3.

Sapwolf on October 22, 2008 at 2:12 PM

But, sales taxes are for your state/local gov’t.

rjwest21 on October 22, 2008 at 10:24 AM

True. I prefer the original system as devised by our Founders (and subsequently screwed up by later politicians)…

Senators were there to represent their states… not people in their states. Why? Because originally, the Federal Government could not levy taxes directly on people in a state. That was a state right. (And one stupid amendment later…)

You see… when Senators voted on a budget, that budget was divvied up among the states (based on population)… and they received a bill!

That’s right. Senators couldn’t pass taxes as they wished… because the state they represented would have to pay that out of their budget.

Going from memory, I believe the Federal Government could only raise funds via import/export levies.

Of course, when the only Constitutional expenses are military, military bases, post offices, administrative offices and roads to those locations… you don’t need much to run a government.

The Founders put our politicians to shame…

dominigan on October 22, 2008 at 2:21 PM

Of course the governments of states with huge deficits will undoubtedly see an opportunity. The rational that since you are (allegedly) paying less federal tax you should be well able to afford higher state taxes.

diogenes on October 22, 2008 at 2:37 PM

Again if there were no food stamps, no wic etc would anyone care how many kids a couple has? the fac tthat the governments gives these checks makes this country a country of busy bodies. Get rid of the welfare programs and freedom and common sense comes back. When big daddy isn’t there people must think and act for themselves. Most of our problems can be traced back to this problem. Therefore if you disallow those that get benifits from voting most of these problems would go away.

unseen on October 22, 2008 at 1:56 PM

Exactly, great point! But, they abused welfare way to long with no regards to their own people. And, if there wasn’t programs like that. You are right. Have tons of kids. Some that don’t have kids shouldn’t have to pay for them in taxes. Thank you for the great points. This is how we should communicate. So many excellent points on here. HotAir is the best!

sheebe on October 22, 2008 at 3:06 PM

The FairTax

What is the FairTax?

The FairTax plan is a comprehensive proposal that replaces all federal income and payroll based taxes with an integrated approach including:

- A progressive national retail sales tax.
- A prebate to ensure no American pays federal taxes on spending up to the poverty level.
- Dollar-for-dollar federal revenue neutrality.
- Repeal of the 16th Amendment through companion legislation

Note: The above is clipped from the website. I’ve no time to read the entire thread, because I’m, well, working to pay my “October Surprise” of self-employment taxes. (Ya, I took the extension to Oct 15) I already pay 40%(!) of every dollar I make right back to the IRS. For the math challenged among us, I only get to keep 60 cents of every dollar I make. That sux!

Im_no_dhimmi on October 22, 2008 at 3:46 PM

Childless individuals who whine about having to share the costs of educating future workers/taxpayers don’t seem to mind the benefits of having those young people around to provide products and services for them long after they themselves have become useless.

VerbumSap on October 22, 2008 at 4:45 PM

Consider California. The number of people and companies that have left the state because the tax cost of doing business/living there has been too high.

Is there a US government do-over button that someone is sitting on? Please check. I’ve already looked under my ass.

watson007 on October 22, 2008 at 6:34 PM

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