Number And Percent Of U.S. Tax Nonpayers At Record High; More Tax Filers Now See IRS As A Source Of Income

From The Tax Foundation:

A nonpaying tax return is one filed by an individual or couple who, thanks to legal credits and deductions, owes nothing. Nonpaying status used to be a sure sign of poverty or near-poverty, but Congress and the President have changed the tax laws to pull much of the middle class into the growing pool of nonpayers. The income level at which a typical family of four will owe no income taxes has risen rapidly, now topping $51,000 (see chart above).

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 (see chart, click to enlarge). That means more than 36% of all Americans who filed a tax return for 2008 were nonpayers, raising serious doubts about the ability of the income tax system to continue funding the federal government's ballooning expenditures.

Bottom Line: Over the past two decades, Washington lawmakers have increasingly turned to the tax code to deliver social benefits, incentivize behaviors, and funnel money to targeted groups, which they always refer to as "helping the middle class." These measures have not only added complexity to an already Byzantine tax system, they have also eliminated the income tax obligation for millions of tax filers and their families. As a result, a record 51.6 million tax filers-36 percent of all filers-had little or no connection with the basic costs of government in 2008.

Tax years 2009 and 2010 are likely to produce a number of nonpayers equal to or greater than in 2008 because of Obama's new tax credits targeted at lower- and middle-income taxpayers. As the number of refundable tax credits continues to grow, more and more tax filers are seeing the IRS as a source of income, not something to which taxes are paid. The consequences of these trends deserve a broader national discussion than either party in Washington seems willing to engage in."