Half the Country Doesn’t Pay Income Tax?

09Apr10

According to the Associated Press, 47% of the US income tax filers paid zero income tax last year.   How is that even possible?  With tax breaks of course.

In recent years, credits for low- and middle-income families have grown so much that a family of four making as much as $50,000 will owe no federal income tax for 2009, as long as there are two children younger than 17, according to a separate analysis by the consulting firm Deloitte Tax.

I think one of the biggest problems that I see with the way that these tax brackets and other salary level cutoffs work.  Here we live in Providence.  It’s a much cheaper cost of living than Boston or New York, but many would consider $50,000 to be not that much money for a family of four to live here.  But if you take that same salary and live in Topeka, Kansas, you can get by just fine.  Using a cost of living calculator, $50,000 in Topeka is equivalent to more than $67,000 in Providence or almost $85,000 living in Boston.  Most would say that $85,000 is a pretty good living.  Now imagine that you were doing that and living federal income tax free!  Now it’s worth even more.  I will admit that it is a personal choice on where you live, but the point that I’m making is that these brackets and cutoffs should have a little flexibility for cost of living.  A family struggling to get by in Boston isn’t getting the same tax breaks as a family doing ok for themselves in lower cost areas of the country.

Then there’s also this:

It is a system in which the top 10 percent of earners — households making an average of $366,400 in 2006 — paid about 73 percent of the income taxes collected by the federal government.

The bottom 40 percent, on average, make a profit from the federal income tax, meaning they get more money in tax credits than they would otherwise owe in taxes. For those people, the government sends them a payment.

That kind of flies in the face of what the Poverty Institute and the progressives around Rhode Island will tell you. They’ll tell you that the rich people pay nothing while the poor are struggling to get by because they’re overtaxed. I guess I don’t really understand how one can be “overtaxed” when they get money back from the system.

And why is it that the US is going broke?

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