Out of The Spotlight

Federal Income Tax Debate: Who’s Paying, Who’s not, and Who Wants to Change that

"Out of the Spotlight" Posting for September 1, 2011

About 46 percent of American households will pay no federal individual income tax in 2011. Since the nonpartisan Tax Policy Center made note of that fact in a report last month, politicians and pundits on both sides of the aisle have ignited a national debate over who is – and who should be – paying federal income tax. These debates haven’t always interpreted the 46 percent statistic correctly, and this week the New York Times joined the conversation with a sharply-worded editorial criticizing some of the arguments.

Over the course of the debate, some commentators incorrectly extrapolated that the 46 percent figure means nearly half of Americans don’t pay any taxes. But, as the Times points out, even if these individuals don’t make enough money to qualify to pay federal income tax, they are paying payroll tax, gasoline excise tax, and state and local taxes.

Others, assuming tax credits for working families are the culprit, have suggested cutting the Earned Income Tax Credit (EITC) and the Child Tax Credit (CTC).  In an exclusive commentary for Spotlight, Elaine Maag of the Tax Policy Center pointed out that if such an action were taken, “the drop in benefits to low-income families [would] be precipitous.” In reality, just 15 percent of the Americans who won’t pay  federal income tax this year fall into that category as a result of tax credits.  Another 50 percent have such low incomes that they are covered by the standard deduction and personal exemptions in the tax code, while 22 percent are seniors whose social security benefits are exempt from income tax.

Inevitably, the issue has filtered into politics with GOP presidential hopefuls Rep. Michele Bachmann (R-MN) and Texas Gov. Rick Perry both expressing the view that all Americans should pay income tax. Given that this question will ultimately play out in Congress, such political opinions are worth noting. Both the EITC and CTC were expanded under the American Recovery and Reinvestment Act, but those expansions are set to expire at the end of 2012. President Obama’s payroll tax cut, which benefits low- and middle-income workers, is also set to expire in December.  Although Obama is pushing for an extension, he faces a tough audience in Congress.

As fall begins and Congress’ Super Committee turns its attention to the deficit, OOTS will be looking to see how this hot-button political issue plays out in the lives of real people.


Posted by Hannah

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Here at Out of the Spotlight, we offer a behind-the-scenes look at the latest news and information essential to anyone working to fight poverty. From key political appointees to clashes over policy, we cover the news that doesn't always make the evening news. Check out Out of the Spotlight for our take on the twists and turns of the latest political developments and their impact on poverty reduction. Topics and ideas are welcome! Just contact mlaracy@aecf.org or watersboots@hotmail.com