NCPA - National Center for Policy Analysis


September 23, 2004

A record number of Americans will have no income tax liability in 2005, according to a new report by the Heartland Institute.

Citing figures from the DC-based Tax Foundation, the Heartland Institute says 29 million people had no federal income tax liability in 2000. This figure will reach 44 million in 2004 -- a 50 percent increase.

In addition, there will be 14 million individuals and families that will earn some income but not be required to file a tax return. Thus, all told, there will be 58 million income-earning households that will pay no income taxes.

The report also characterizes the typical zero-tax filer:

  • About 75 percent of zero-tax filers will earn less than $20,000 in 2004, and 97 percent will earn less than $40,000.
  • Zero-tax filers are overwhelmingly young, with 36 percent of primary breadwinners aged 25 years or less and 56 percent aged 35 or less.
  • The racial or ethnic composition of zero-tax filers roughly mirrors the demographics of American tax filers as a whole.

The report also says the majority of tax returns that will pay no income taxes will be filed by single individuals (43.5 percent) or single parents (27.6 percent).

Bush's tax cuts were primarily responsible for the growth in zero-tax filers. Also, Congress' implementation of the $500 per-child tax credit and expansion of the Earned Income Tax Credit (EITC) in 1997 have been important. Of the 44 million zero-tax filers, 34 percent will claim the EITC and 50 percent will claim the child credit.

Source: Scott A. Hodge, "58 Million Wage Earners Pay No Federal Income Tax," Heartland Institute, July 2004.


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