Estimates Show 43 Percent Will Pay No Federal Income Tax in 2013

The Tax Policy Center has estimated that 43 percent of Americans will not pay federal income tax for the 2013 calendar year.

The Tax Policy Center is a body of experts in tax and budgets that exists to provide tax analysis information to lawmakers, the media, and anyone else interested in tax policy.  The Center estimates that the percent of Americans paying no federal income tax has fallen in recent years.  For the 2009 calendar year, the Center estimated that 47 percent of Americans paid no federal income tax.

Significance in the 2012 Presidential Election

The 2009 percent gained significant attention during the 2012 presidential election campaign.  Republican presidential candidate Mitt Romney was videotaped without his knowledge quoting the number at a fundraiser.  Romney noted that many of those individuals believe it is the responsibility of the federal government to take care of them and they “will vote for this president no matter what.”

The statement by Romney was made in May 2012 approximately two months before the election.  Polls showed the statement may have cost Romney the election, as many voters were turned off by the statement.

Who are the 43 percent?

The 4 percent drop since 2009 is the result of two primary factors.  First, tax cuts that were in effect in 2009 have since expired, which means more income is subject to a higher tax rate than in previous years.

Second, the economy has improved since 2009, meaning households are earning more income.  The higher levels of income are subject to higher tax, offsetting deductions that may have eliminated tax liabilities for those households in previous years.

The 43 percent paying no federal income tax is made up of the following groups:

  • Approximately 29 percent work part- or full-time jobs and earn more than $20,000 in income, but they have enough deductions to eliminate their tax liability.
  • Approximately 10 percent no longer work because they are elderly and their Social Security and other income is not sufficient to be subject to federal income tax.
  • Approximately 3 percent work part- or full-time jobs and earn less than $20,000 in income, which means they do not earn enough money to be subject o federal income tax.
  • Approximately 1 percent are subject to foreign income tax, which offsets any federal income tax liability they might owe.

The Center made it clear that while 43 percent may not pay federal income tax, they do pay other forms of tax.  Those taxes include at a minimum payroll tax in the form of Social Security and Medicare, as well as sales tax.

In addition, the Center noted that many who pay no federal income tax earn a low income.  However, there are a number of people who earn hundreds of thousands of dollars per year but have sufficient deductions to eliminate their federal income tax liability.

What does the future hold?

The Center estimates the percent of Americans paying no federal income tax will continue to drop with further improvements in the economy.  By 2024, the center believes only 33 percent will pay no federal income tax.

by Mark Johnston

Mark has been a contributor to legal web sites related to bankruptcy, tax, and criminal law since 2011. He has an Accounting degree from Texas A&M University.