More than 72 million American households will not pay federal income taxes this year, marking a significant decrease from last year, according to a new study.
About 72.5 million households – or 40% of all households – will not pay federal income tax for the 2022 tax year, according to a study by the Tax Policy Center. The share marks a significant drop from 59.3% that did not pay federal taxes in 2020 and from 56% in 2021. Both years were dominated by shutdowns and restrictions related to the covid.
The number of Americans who do not pay federal income taxes remains a hot political issue, with many Republicans arguing that more Americans should pay federal income taxes and Democrats often argues that many of the wealthy do not pay taxes.
But the main drivers of so-called “non-payers” – or those who have no federal income tax – are taxes and jobs. During the pandemic, the number of defaulters increased as unemployment increased along with taxes and government payments.
Howard Gleckman, senior fellow at the Urban-Brookings Tax Policy Center at the Urban Institute, said people are less likely to pay federal income taxes when they are unemployed or find big discount. The standard deduction, which doubled after the Tax Cuts and Jobs Act, is $25,900 for married couples and $12,950 for singles, so anyone making less than those These funds will not be subject to federal income tax.
The rise in child loans and tax credits has increased the number of defaulters, along with tax defaults, which are also a form of credit.
“The two biggest drivers of growth in 2020 and 2021 are the tax and labor laws and Covid,” Gleckman said.
Now, with unemployment at or near a record, and many of the government’s debts and payments have ended, the number of Americans who have to pay federal income tax on by 2022 it will rise to close to the historical norm of around 60%.
“People are going back to work and all those taxes are long gone,” he said.
Despite the widespread claim that the wealthy don’t pay taxes, the majority of Americans who don’t pay federal income taxes are low- to middle-income earners.
Almost 60% of defaulters earn less than $30,000 and another 28% earn between $30,000 and $60,000. About 0.6% of the top 20% of earners — or those making $190,000 or more — will pay no federal income tax this year.
About 24 million, or about one-third, of those who don’t pay are age 65 or older, many of whom live on Social Security.
“Most people don’t pay income tax because their income is low,” he said.
Gleckman added that nearly all Americans pay taxes, whether it’s sales and tax, state or property taxes.
The big question in 2023 and the number of non-payers is the economy. Gleckman said if unemployment rises and the economy falls into a deep recession, the number of defaulters could rise again. On the other hand, after 2025, when every provision of the Tax and Jobs Act expires, the number of defaulters may drop dramatically.
If the measures are allowed to expire, Gleckman said the share of Americans paying no federal income tax could drop by 35% by 2032.
Earlier this year, Sen. Rick Scott, R-Fla., took aim at the growing number of defaulters in the “Plan to Rescue America”.
“All Americans should pay income taxes to have skin in the game, even a little bit,” he wrote. “Today more than half of Americans pay no income tax.”
Scott also said in an NPR interview: “We have strong Americans who are living on government programs and not working, and that’s the result of Democrat policies. And it’s not working.”
Democrats like Sen. Elizabeth Warren of Massachusetts and Sen. Ron Wyden Oregon often argues that the rich don’t pay their fair share, pointing to billionaires like Jeff Bezos and Elon Musk, who haven’t paid federal taxes in years.
Gleckman said in the rare cases when high earners don’t pay federal income taxes, it’s usually because of one-time business losses or medical bills.
“For high-income earners who don’t pay federal taxes, it’s usually only for one year,” he said.