TAX FAIRNESS REACHES A TIPPING POINT

March 18, 2010

The latest data show a record number of people with no tax obligation. We also have the highest-earning nontaxpayers ever.  With more riding the wagon and fewer pulling, it should soon break down, says Investor's Business Daily (IBD). 

  • A record number of the 142 million tax returns filed in 2008 resulted in no taxes owed, according to the Tax Foundation's analysis of the latest Internal Revenue Service (IRS) data.
  • About 51.6 million returns, or 36.3 percent, were filed by those whose deductions, exemptions and tax credits wiped out any federal income-tax obligation. 

These aren't people who have overpaid their taxes or had so much withheld from their paychecks that they'll get refunds -- those people owe taxes and merely provided the government with a zero interest loan until accounts are settled.  These are people who pay no taxes at all, says IBD: 

  • There's been a 59 percent increase in the number of nonpayers since 2000, growing from 32.6 million in 2000 to 51.6 million in 2008.
  • In the same period, the total tax filers grew by only 10 percent. 

Not only are fewer people paying any taxes, but also the income levels for these nonpayers have steadily risen, says IBD: 

  • A family of four earning more than $50,000 can have no income tax liability after taking the standard deduction and the child tax credit.
  • According to the Tax Foundation, the major elements of the Economic Stimulus Act of 2008 boosted the maximum income for nonpayers to more than $56,700 -- the highest ever. 

The government has continually expanded the value of benefits such as the earned income tax credit to the point where you get a check from Uncle Sam even if you paid no taxes during the year.  That's what made it so laughable when the administration claimed it was cutting taxes for most Americans when nearly 40 percent pay no taxes to start with.  These are in essence welfare checks, says IBD. 

The tax code was originally intended to raise sufficient revenues to pay for the essential functions of government.  It has morphed into a tool for social engineering, to incentivize or punish certain behavior, and even to redistribute wealth.  That's why we call it a "progressive" tax code, explains IBD.  

Source: Editorial, "Tax Fairness Reaches A Tipping Point," Investor's Business Daily, March 17, 2010. 

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