RSSHow Many People Don’t Pay Taxes?
June 12, 2012
kosmo - See all 763 of my articles
47% of Americans pay no income tax, according to many sources. Is this really true? Let’s take a look.
First of all, I’m going to present IRS data, so I’m limited to the information from tax returns. According to the 2010 US census the population of the United States was around 308.75 million people. The number of exemptions claimed on 2009 tax returns (the most current data available from the IRS) was 283.8 million. In other words, 25 million people – about 8% of the population – don’t appear anywhere on tax returns.
Who are these 25 million people? [survata]They could be people dodging taxes. They could be people who have paid their share of taxes in their lifetime (retired) or will pay their fair share at a later stage in their life (students). These may even be people who paid some amount of income tax during the year but aren’t filing for a refund (yes, this does happen).
Let’s work with the numbers we have from the IRS. Of the 140 million tax returns filed for the 2009 tax year, just over 58% paid taxes. So this means 42% of the people in this group didn’t pay taxes, right?
Wrong.
It means that 42% of the returns didn’t have any tax liability. What’s the difference?
Let’s walk through this example:
- Sam makes $3000 from his summer job and has no tax liability.
- Danielle and Thomas have three children: Mark, Lindsey, and William. They have tax liability of $150,000.
Looking at this example, what percent of people aren’t paying taxes? Is it fair to say 50? 50% of the tax returns (1 out of 2) have tax liability. Is it 33% (1 of the 3 adults aren’t paying taxes?). Is it 17% (1 of the 6 Americans aren’t paying taxes?) The people who are simply looking at the number of tax returns with taxes paid are going to say 50%. Is that right or wrong? I’ll let you decide.
If you choose 33% or 17%, let’s dig a bit deeper. Take a look on my article regarding how many people make more than $250,000. You’ll notice an correlation between number of exemptions (essentially household size) and income. The lowest income levels have the lowest number of exemptions (1.01), with this increasing until it plateaus around 3 in the $500,000 – $1,000,000 range.
There’s also a correlation between income level and likelihood of owing income tax. Less than 3% of tax returns with under $5000 in adjusted gross income owed any taxes, building to 77%+ in the $40,000 – $50,000 range and near 99% by the time we reach the $100,000+ range.
What’s my point? Let’s look at an extreme example. A million tax returns in the sub-$5000 range represent 1,010,000 Americans (1.01 exemptions per return). A million tax returns in the $500,000 – $1,000,000 range represent 3,050,000 people (3.05 exemption per return). Let’s take a sample of a million returns from each of these groups. Let’s further say that all one million returns in the $500,000 – $1,000,000 group have taxes owed and 160,000 returns in the sub $5000 group have taxes owed. That means that 1,160,000 / 2,000,000 – or 58% – of the returns have tax liability. However, these returns represent 3,211,600 or the 4,150,000 people – in excess of 77%. The basic mathematical concept here is weighted average.
An extreme example, yes. However, it does illustrate a valid point. The 42% of tax returns with no liability is going to represent less than 42% of the 283.75 million people covered by these returns.
Just want the data? Here it is!
Source: http://www.irs.gov/pub/irs-soi/09in11si.xls (compare column 6 to column 1)
| AGI | Filers | Pay tax |
| All returns | 140,494,127 | 58.27% |
| No adjusted gross income | 2,511,925 | N/A |
| $1 – $5,000 | 10,447,635 | 2.93% |
| $5,000 – $10,000 | 12,220,335 | 15.54% |
| $10,000 – $15,000 | 12,444,512 | 23.17% |
| $15,000 – $20,000 | 11,400,228 | 42.69% |
| $20,000 – $25,000 | 10,033,887 | 46.21% |
| $25,000 – $30,000 | 8,662,392 | 53.15% |
| $30,000 – $40,000 | 14,371,647 | 66.71% |
| $40,000 – $50,000 | 10,796,412 | 77.62% |
| $50,000 – $75,000 | 18,694,893 | 87.99% |
| $75,000 – $100,000 | 11,463,725 | 95.81% |
| $100,000 – $200,000 | 13,522,048 | 98.88% |
| $200,000 – $500,000 | 3,195,039 | 99.38% |
| $500,000 – $1,000,000 | 492,568 | 99.18% |
| $1,000,000 – $1,500,000 | 108,096 | 99.05% |
| $1,500,000 – $2,000,000 | 44,273 | 99.06% |
| $2,000,000 – $5,000,000 | 61,918 | 99.09% |
| $5,000,000 – $10,000,000 | 14,322 | 99.06% |
| $10,000,000 or more | 8,274 | 98.86% |
Other tax articles by Kosmo
[/survata]
Assorted
Income, Internal Revenue Service, Tax, Tax exemption, Tax Return, Taxes, United States
Aug 09, 2011 @ 06:12:15
I think my head just exploded . . .
I do understand, the point, though. As with most things statistical, we can’t just look at the numbers on the surface.
Aug 09, 2011 @ 10:23:21
Well, I was aiming for two takeaways here:
1) There is not a 1:1 correlation between a person and a return … and in fact the coefficient changes.
2) Not all non-payers are deadbeats. Should a 90 year old who paid into the system for 50+ years be expected to be paying taxes? Likewise, should the 16 year old working at McDs a few hours over the summer be expected to pay taxes (there’s plenty of time to bleed money from the kid).
Aug 22, 2011 @ 00:18:27
The other point of course, is that even if you don’t pay income tax, you likely pay medicare and social security tax, and even if you don’t pay those taxes because of the Earned Income Tax Credit, you definitely pay sales taxes and property taxes (or at least your landlord’s property taxes). There is basically no one in this country who doesn’t pay taxes (I assume there are some weird people who are completely off the grid).
We might as well argue that only 1 out of 7 filers pay capital gains taxes, so its much more unfair than the income tax (http://www.urban.org/publications/1001201.html).
Aug 22, 2011 @ 09:06:56
@ StlPastor – I’m not sure that the capital gains comment is quite the same thing. The 6/7 of the people who aren’t paying capital gains taxes because they don’t have realized capital gains. Many of those who don’t pay income tax DO have income.
For the record, I think we’re on the same side here. My point was that the numbers that get quoted are inflated or misleading.
You’re definitely correct that most people pay some sort of taxes. About the only way to avoid it (other than being “off the grid” in a hermit type of way) would be to live in a state without sales tax, rent, and live off your Roth IRA (taxes are paid up front, so there are no taxes on withdrawals). Even then, you’ll get dinged with hotel/motel tax, gas taxes, regulatory fees on phones, airline tickets, etc,
Nov 19, 2011 @ 13:10:58
I like your approach to the question. Is there a way to match a person’s exemption with whether there was any tax liability on the return that covers them? (I.e. really do the weighted average?)
I think it is also an insightful point that WHY these people are not paying taxes is a separate question. It might be for reasons many would agree with.
Nov 10, 2012 @ 10:11:25
I am one of the 47% who “don’t pay taxes,” as in, I pay my taxes every year, every month, with every paycheck. But, if looked closely at the payroll guidelines for deducting how much of what from wages, in paying my portion of state and federal taxes, social security, etc. I should be paying negative (–) x amount of dollars twice a month, out of every check… Is that to say that I should receive (x) amount of dollars from the government and the state every month…? That’s not how our world works I have money for state and federal taxes, social security, etc. come out of my checks anyways.
By these standards I OVERPAY my taxes monthly, therefore when the end of the year rolls around and I get my taxes together and file like a good American. Filing my taxes is like showing the IRS how much I have overpaid in the last year and I do get a refund. So in the setion of stats of what filed in the “tax season” it appears that I pay no taxes…
So in essence, to be fair to the low-class mom who works her butt off for her family I “don’t pay taxes” IN APRIL, but don’t discredit me or others in my situation. I am a mother of two beautiful boys and I made $16,000 last year (working in a law firm) not flipping burgers. Families can survive and live comfortably when we don’t try to live beyond our means.
Nov 11, 2012 @ 10:06:02
Megan,
Overpayers are not considered to be non-payers. Payments made during the year are combined with the payments/refund at tax time to determine total payment. If you pay $5000 in federal income taxes during the year and get a $700 refund, you paid $4300. This is the number used in the IRS spreadsheet. If they only used the April refund/payment amounts, it would be completely worthless data.
I definitely think the issue of the 47% is exaggerated and misleading, as I described in my article.
Feb 24, 2013 @ 00:04:24
What about the people that get back more than they paid in? Don’t get me wrong I enjoy getting more money than I paid but I still don’t think it is fair. This year I paid in just over $1600 in federal taxes. My refund was just over $2600. So the other tax payers just paid me $1000 for the year. I hear all this crap about the rich paying more. Why don’t we start with closing the loop holes that give people more money than they paid? I’m sure that they (we) need to pay our fair share as well.