Most American households paid no federal income tax last year due to COVID-19 unemployment, relief funds, tax credits and stimulus payments, according to a new report.
The nonpartisan Tax Policy Center estimated that 57% of U.S. households paid no federal income tax in 2021, compared with 44% the previous year, CNBC was the first to report.
The share of Americans who paid neither payroll nor federal income taxes was 19% in 2021, up slightly from 17% before the COVID crisis kicked in.
The expanded child tax credit had a huge effect on federal income taxes, according to Howard Gleckman, a senior fellow at the organization. It substantially reduced “the income tax liability of more than a hundred million households, and temporarily turned many from payers of small amounts of federal income tax to non-payers,” Gleckman wrote in the report.
Congress failed to extend the expanded child tax credit after Sen. Joe Manchin (D-W.Va.) blocked passage of the Build Back Better legislative package in December.
With that tax credit and other COVID relief programs ending, Gleckman forecasts that the number of non-payers will drop to 42% in 2022 — and to 38% by 2029, CNBC reported.
The fact that such a hefty chunk of Americans didn’t pay federal income taxes last year doesn’t offer any hope of narrowing the wealth gap in the nation. In the last 30 years, the share of after-tax income held by the top 1% of taxpayers has grown, while the portion held by the bottom 90% has fallen, according to the Tax Policy Center.
Sen. Rick Scott (R-Fla.) is pitching a controversial “Rescue America” plan that would require every American to “pay some income tax to have skin in the game” — even as major corporations, including Amazon and IBM, have gotten off tax free.