Published September 27, 2012
Our nation’s tax code is long and complex, and as I’ve shown in recent columns there are ways the super rich can avoid paying massive taxes and for lower-income individuals to reduce their income and save on taxes-- even to the point of receiving back more money than they paid in.
But the question remains, who makes up this 47% and why don’t they pay income taxes?
Here is the breakdown, according to the Tax Policy Center:
Elderly: 10.3% This group has likely paid off their mortgages and is earning reduced income in the form of modest pensions and Social Security benefits. If they are making less than $10,950 (single), $20,150 (married filing jointly) and $13,650 (head of household) in annual pension benefits alone, then their Social Security is not taxable and they have no filing requirement.
6.9%: Non-elderly Some of these folks are under the age of 65, likely live in low-income areas, may possibly enjoy the benefits of low-income housing, food stamps, government subsidized medical, etc. They make less than $9,500 (single), $19,000 (married filing jointly), and $12,200 (head of household). They have no filing requirement and do not work. If they did, they would be included in the next category of the 28.3%. This could also include the ultra rich who pay no taxes thanks to tax loopholes. It also includes many students living off student loans or with their parents. And don’t forget our beloved Armed Forces who receive nontaxable combat zone pay.
28.3% Pay Payroll Tax This group has jobs, but are working for very low pay or part time. They pay into Social Security and Medicare through payroll withholding, but because their incomes are so low, they end up owing nothing in income taxes.
Low enough wages to not have to file a return can be common at large corporations. According to Forbes 400 Richest Americans 2012, four members of the Wal-Mart family hold 6th through 9th place with a combined net worth of $107.1 billion. Yet, Angela Andrews, a registered tax practitioner who works in a tax office at a California mall across from Wal-Mart states, “more than 50% of the 100 Wal-Mart employees who come in to get their taxes done qualify for and receive the Earned Income Credit.” When employers don’t pay the difference between the minimum pay scale and adequate compensation, taxpayers provide it in the form of the EIC for those workers.
These people are legally entitled to the Earned Income Credit (EIC), which helps low-income filers hold on to and even get more money from Uncle Sam. Many eligible candidates for the EIC are single parents, and can get a maximum of $5,666 for 2011 with the credit.
Some corporations prefer to hire two part timers rather than one full-time individual so they don’t have to provide fringe benefits.
<1% Others – a hodge podge of the remainder that make up the 47%, with no descriptive provided by the Tax Policy Center. These are probably self-employed individuals who are suffering business reversals. They file tax returns with the hopes of carrying backward or forward their business losses. No tax is due if you threw your money into a business that is not yet giving you a return on your investment.
So as you can see, the 47% is a varied group. Some are elderly, living modestly on small pensions. Some work and pay into the system in other ways. Some are thrown by the bad economy, unemployed and looking, losing their businesses, losing their homes.
On Mitt Romney’s website is the following declaration: “Mitt Romney has scrupulously complied with the U.S. tax code, and his income is reported and taxed at the applicable rates, and he has paid 100 percent of what he has owed.”
It’s likely that most among the 47% can say the same.
Think about the tax monster we have created. The rich pay 15%, the poor get reverse welfare. Those in the middle are forced to carry the load. It’s time for less talk and more action. We need a Congress and a president who will radically change the tax system in this country.
Bonnie Lee is an Enrolled Agent admitted to practice and representing taxpayers in all fifty states at all levels within the Internal Revenue Service. She is the owner of Taxpertise in Sonoma, CA and the author of Entrepreneur Press book, “Taxpertise, The Complete Book of Dirty Little Secrets and Hidden Deductions for Small Business that the IRS Doesn't Want You to Know.” Follow Bonnie Lee on Twitterat BLTaxpertise and at Facebook.