47% of people don’t pay taxes?

18 Sep

Mitt Romney perhaps revealed his true personality in Mother Jones’s secretly taped video that was released yesterday.

When I hear people talk about it, they keep saying that 47% of people don’t pay taxes. Which is false. Romney stated that 47% of people do not pay INCOME TAX. Its an important distinction. The 47% that Romney disparages as “entitled” do pay taxes. 60% of them pay payroll taxes, also know as Social Security (FICA) and Medicare (FUTA). They pay local and state income taxes. The pay property tax and school taxes either directly or indirectly through their rents. They pay sales tax on their purchases. And there are lots of other little taxes like gas tax, liquor tax, luxury tax, license taxes etc..

But he is correct in that they do not pay income tax. Why is that? Because after perfectly legal deductions, exemptions and tax credits, they don’t have any taxable income.

Some examples:

  • A family of four with an income less than $23,050 is considered to be in poverty. So you would not be surprised to know that such a family does not pay any income tax.
  • An elderly person who’s main income comes from Social security does not pay any income tax.
  • There are people who have jobs and pay Social Security and Medicare tax but do not pay income tax. For instance, a married couple with 2 children with an income of $40,000 is not obligated to pay tax under the current tax law. (see the first chart below)
  • There were  78,000 people with incomes over $200,000 who paid no income taxes last year, for various reasons (see IRS chart below).
  • There are reportedly 3,000 people with incomes over $2,178,866 who did not pay any taxes last year.

Is it fair?

One could argue that everyone should be same income tax, even if it is a symbolic amount. And people with incomes over $200k a year certainly should be paying their fair share. But we are not thinking like the rich. People with money calculate their effective tax rate. Its not just about the amount that you pay, its the percentage. The working poor pay a greater percentage of their income in taxes (including payroll, state, local and sales tax) than a wealthy person does — even if that person does not pay income tax.  Warren Buffet famously stated that his secretary pays a higher tax rate than he does. Check out http://www.whatmittpays.com to calculate your tax rate against Mitt Romney’s.

So to sum up. It might sound unfair that you pay income tax and 47% of Americans do not, but take into consideration the total percentage of tax that you pay (if you add it all up, its pretty depressing). You may find that a poor person actually pays a greater percentage of tax than you do, and then you can feel better and vote for Obama.




No comments yet

Leave a Reply