Tuesday, September 18, 2012


In “Who Doesn't Pay Federal Taxes?”, a study by the Tax Policy Center, we are told that “46.4% of Households Paid No Federal Income Tax for 2011

It then points out - “But Nearly Two-Thirds of Households That Paid No Income Tax Paid Payroll Taxes”.  That leaves 18.1% who pay neither income nor payroll tax. 

Of this 18.1% the study indicates that 10.3% represent the elderly and 6.9% represent “non-elderly” individuals with income under $20,000.

The implication here is that the problem of the “non-taxpayer” is not as bad as one would think because, while almost half of all Americans either pay no federal income tax or make a profit by filing a 1040 via refundable credits, many actually do pay federal tax in the form of FICA or payroll taxes (Social Security and Medicare), and only the elderly and the poor pay nothing.

But I do not agree with this implication and do strongly feel it is a real problem that almost half of Americans pay no federal income tax.

In my opinion, the FICA tax is not a tax.  It is a contribution to a retirement plan (Social Security) and a payment for future health insurance (Medicare). 

Payments of Social Security “tax” allow the individual to collect a pension at retirement, and payments of Medicare “tax” allow the individual to receive extensive health care coverage at a very cheap rate (less than $100 per month) at age 65.  

A big reason so many people do not pay any income tax, or make a profit from their return, is because of the many social benefit programs and subsidies that are run through the Tax Code, such as welfare (EIC) and tuition assistance. 

As I continue to say -these payments and subsidies may be good, and beneficial to society, but they should be distributed as direct payments or subsidies via the appropriate governmental department budget, and not as tax deductions or credits.

Do you agree with my thinking?


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