Latest Income Tax Data

Data releases by the IRS attract much attention as pundits dig through to find out which types of taxpayers paid more or less income tax.

The Joint Committee on Taxation recently released its own data on federal income tax payments, which is somewhat different. The latest IRS data is for 2005, while the JCT data are estimates for 2006. Another difference is that the JCT data include estimates for nonfilers, which gives a more universal view of the population than the IRS data.

Here is a summary table based on the JCT data (see Table 2, page 37).

Observations:

  • 57.6% of households paid income tax in 2006, meaning that 42.4% did not pay any income tax.
  • Looking at the similar JCT table for 1990, that 42% nonpayer share is up from about 30%. Some of the reasons include the expansion of the earned income tax credit (EITC), the creation and expansion of the child tax credit, and President Bush’s new bottom tax rate of 10%.
  • The JCT data show that for 2006, 23 million filers received $43 billion in EITC, which is a key reason why most people at the bottom do not pay any tax.

As Sallie discusses, it is a problem for a democracy–particularly one less constrained by constitutional rules than in the past–to have such a large and growing share of residents not paying any tax because these folks are unconstrained in campaigning for more benefits for themselves at the expense of others.

(Yes, all workers pay federal payroll taxes, but that is often wiped-out for those at the bottom end by the receipt of EITC payments from the Treasury. And, of course, low-income workers receive an array of Social Security and Medicare benefits loosely tied to their payment of payroll taxes).