One specific statistic got a lot of media attention this last tax season: approximately 47% of Americans would pay no federal income tax in 2009. The Tax Policy Center recently published a report explaining why so many people would be tax-free.
The first factor in so many people not having to pay income taxes is the recession. Many people lost their jobs, or had their pay cut as a result of the economic downturn. The lower your income, the less you pay in taxes. If your income gets low enough, you will not be subject to federal income taxes.
The biggest factor in the high number of people who didn’t have to pay income tax: tax credits and deductions. The increase in deductions, credits and dependent exemptions has lowered tax liabilities almost across the board, often low enough to remove all tax liability.
So, is this a good thing? A bad thing? It’s up for debate. Yes, our country is neck-deep in budget deficits, and more tax revenue would certainly help solve that issue. On the other hand, nearly every family has suffered some economic losses in the last few years, and that extra cash in their pockets goes a long way in helping stay afloat. Either way, I will be keeping an eye on this trend over the coming years to see how it all plays out.
You can read the Tax Policy Center’s full report here.