Discuss Question 20
20. FISCAL KNOWLEDGE: About half of federal tax filers do not pay any federal income tax.
ANSWER: True – The existence of various tax credits, deductions, exemptions and exclusions results in about half of federal tax filers not paying any federal income tax (data obtained from Tax Policy Center, a non-partisan tax analysis partnership between the Urban Institute and the Brookings Institution). It’s important to note that this only relates to income taxes and not payroll taxes. In fact, most Americans pay more in payroll taxes than income taxes. The large percentage of people not paying income taxes is partially the result of the Earned Income Tax Credit, the purpose of which is to effectively provide payroll tax rebates for those at the low end of the income spectrum. These payroll taxes go toward paying for Social Security and Medicare, whereas income taxes are used to pay for the remainder of all other government programs, including Defense, Foreign Policy, Justice, Education and Transportation. Therefore, about half of federal taxpayers contribute nothing to fund this portion of federal spending.