46 Percent of Americans Exempt From Federal Income Tax in 2011

Nearly Half of Americans Exempt From Federal Income Tax

Nearly half of American tax filers will pay no federal income taxes this year, according to data released by the Tax Policy Center.

Some 76 million tax filers, or 46.4 percent of the total, will be exempt from federal income tax in 2011.

But with the help of the government, a similar percentage of filers -- many of them among the bottom 40 percent of earners -- have legally avoided paying federal income tax for the past several years.

More than half the filers exempt from federal income tax in 2011 are in the lowest income quintile, meaning they make less than 80 percent of the country. As Bruce Bartlett at The New York Times notes, those in the bottom quintile have incomes of less than $16,812.

There are 40.7 million nonpayers in this group -- about 93.3 percent of the quintile, and 53.6 percent of all nonpayers overall.

Nonpayers are well represented in the second-lowest quintile, as well: That group includes 22.2 million filers who won’t pay federal income taxes this year. This is 60.3 percent of the quintile and 29.2 percent of the total number of nonpayers.

The phenomenon of low-earning Americans escaping the federal income tax burden isn't a new one. In 2002, The Wall Street Journal coined the term "lucky duckies" to describe people who were exempt from income tax because they didn't make enough money.

That phrase, unfortunately for the WSJ, attracted no end of ridicule, from the NYT, The New Republic, and elsewhere.

"Had the editors ever met a person of little means?" wondered Farhad Majoo at Salon. "Did they realize that being poor, while perhaps an attractive tax shelter, tended to come with such hard-to-bear downsides as not knowing where your next meal will come from?"

In most cases, tax filers who don’t pay federal income tax are still on the hook for other taxes. They can still be responsible for payroll taxes, withheld from their paychecks, and for excise taxes on gasoline, tobacco, alcohol, and other goods. And they may have to pay income tax at the state or local level.

Many filers exempt from federal income tax are the beneficiaries of programs aimed at helping the working poor. At the NYT, Bruce Bartlett points out that between 2000 and 2008, during the presidency of George W. Bush, the percentage of filers who paid no federal income tax rose from 25.2 percent to 36.3 percent. During this time, Bartlett says, Republicans added a significant child credit to the tax code, resulting in a rise in nonpayers.

In fact, the number of filers paying no federal income tax has hovered between 40 and 50 percent for the past several years.

In 2010, 45 percent of households paid no federal income tax, according to the Tax Policy Center. In 2009, it was about 47 percent. In 2008, 49 percent were exempt from federal income tax.

All in all, according to the Tax Policy Center, there will be 76 million nonpaying “tax units” in 2011. The Center defines a tax unit as “an individual, or a married couple who file a tax return jointly, along with all dependents of that individual or married couple.”

And not all of those tax units represent the working class.

Nine million nonpayers, or 12.8 percent of the total, are in the middle income quintile. Another 1.9 million -- 2.6 percent of the total -- are in the second-highest quintile, and some 443,000, or 0.6 percent of the total, are in the top quintile.

The Tax Policy Center breaks down that last number a bit further: There are 78,000 non-paying units in the top 95th to 99th income percentile, 24,000 in the top 1 percentile, and 3,000 in the top tenth of a percentile.

This group has a nickname, too: they're the HINTs, for high income, no taxes.

These might be people who get their income from tax-exempt bonds or overseas sources, as CNN reported last year.

Or they might be people who have incurred losses from partnerships or S Corporations. Or people who have run up "extraordinary" medical or dental bills. As The Fiscal Times noted in December, these are other ways to realize one's HINT status.

And as The Fiscal Times points out, they're all "perfectly legal."

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