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.
I think the question is asking if half of the Form 1040 that are filed include zero taxable income. I don’t think so.
I think this was true for one year, 2008, and was the impact of the additional child credit and stimulus spend. It has returned to more historical levels since.
How about similar info on business tax. I see info on many large corporations that pay little or no corporate taxes because of deductions.
With the deductions given to some, the answer to the question is astoundingly correct. Have 6 children, and their deduction can cancel your tax; the Earned Head of Household Income credit has actually allowed people to get a refund greater than the tax they paid in. A major tax reform for a flat income tax for everyone, that could actually be lower than the average middle class person now pays, with no deductions would result in greater revenue for the government. It would also result in a savings on the preparation of taxes and paperwork and processing by the government.
Payroll vs income tax? Not something I fully understood. If your interested here is one answer.
What is the difference between payroll and income tax? Is payroll merely the weekly form of income tax or is it different since it raises money specifically for social security and medicare/medicaid.
Is the govt trying to screw over the poor by making us pay more in payroll taxes that are more regressive than income taxes?? I hate how they only have a sales tax for goods, which the poor (and everyone) need, and not for services, of which the rich buy a larger share proportionally.
Thanks!
ANSWER PERSON RESPONDS: Technically, a payroll tax is a tax paid by the employer based on its payroll. An example would be the employer portion of U.S. Social Security (Old Age and Survivor’s Insurance or OASI) or unemployment insurance (FUTA, for Federal Unemployment Tax Act). There may be all sorts of variations, such as limits on the level of wages on which the Social Security tax is applied. Colloquially, I’ve heard the term used for the entire Social Security program, including the employee portion, as you suggest. The income tax comes from the employee based on their income and, from a theoretical or policy (but perhaps not from a psychological) standpoint, is considered distinct. The money isn’t earmarked the same way as OASI or FUTA money. You can read about these topics in standard textbooks or dictionaries of economic or public policy terminology.
The topics of tax policy and tax incidence (e.g., who ultimately pays for the employer portion of OASI, or corporate income taxes, or property taxes — is it “passed on”?) has been studied extensively in academic literature (but probably not so much by politicians!). You’re correct that Social Security and sales taxes are generally considered more regressive than some other taxes, although ultimate incidence can be debated and you also have to consider the recipients of expenditures funded by a tax (which might make it less or even more regressive). I invite you to search our library’s catalog or databases that index articles or ask at our Reference Dept.
FYI, that definition came from Duke.edu Library answer person