America: Who really pays the taxes?

"During 2008, more than a third of all [U.S. Federal Income Tax] returns resulted in complete nonpayment; that is, people got back every dollar that was withheld from their paychecks during the year. Many got quite a bit more, turning Tax Day into a payday," writes the Tax Foundation in this report.

Though it's good news in millions of homes, the Foundation is upset that more and more Americans of modest means are now escaping the income tax: "The income level at which a typical family of four will owe no income taxes has risen rapidly, now topping $51,000... As a result, recently released IRS data for the 2008 tax year show that a record 51.6 million filers had no income tax obligation That means more than 36 percent of all Americans who filed a tax return for 2008 were nonpayers...

"Lawmakers have increasingly used the tax code instead of government spending programs to funnel money to groups of people they want to reward. Credits have been enacted to subsidize families with children, college students, and purchasers of hybrid cars... The most significant of these socially targeted credits was the $500 per-child tax credit enacted in 1997. The 2001 and 2003 tax bills doubled the value of the credit to $1,000 and added a refundable component...

"The [Earned Income Tax Credit] and the [Bush-enhanced] child tax credit are also refundable, meaning that taxpayers are eligible to receive a check even if they have paid no income tax during the year. Those tax returns have become, in effect, a claim form for a subsidy delivered through the tax system in much the same way that a traditional government program sends out a welfare check or a farm support check."

Actually it's not as bad as all that; poor and middle-income workers still pay a disproportionate part of the 7.65% Federal Insurance Contributions Act (FICA) tax. FICA's supposed to fund Social Security and Medicare, but we all know it all goes into the same place as the Federal Income Tax, right?

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