It’s just over a month until tax day — April 15 — typically one of the most dreaded days on the calendar for Americans.
But that red-letter day is of diminishing significance to an increasing percentage of Americans every year, even as Uncle Sam runs up record amounts of red ink. The implications of this divergence are extremely important to the future of the spending debate and to the health of our economy.
How so? Well, as the Tax Foundation pointed out this week in stark detail, the number of Americans who pay absolutely no federal income tax hit a record high of 51.6 million filers in 2008 and is rising by the day. That means over 36 percent of all those who filed tax returns had no income tax obligation to Washington, more than double the amount just 25 years ago.
The reasons for the increase in non-payers cuts across party lines. Although Americans have long embraced a progressive tax code that keeps the truly poor off the tax rolls, over the past two decades a grab-bag of targeted tax credits and incentives have eliminated the tax burden for millions of middle-class filers and their families.
Indeed, the percentage of non-payers accelerated during the presidency of George W. Bush — even as the president was roundly criticized for his tax cuts for “the rich,” the number of Americans who paid no federal income tax swelled by 22 million from 2000 to 2008, from about one-quarter of the working population to more than one-third.
The trend has likely continued to speed up in 2009 and 2010, as the Obama administration targets even more tax credits at low- and middle-income workers.
Indeed, many economists have credited the recent pop in retail sales to consumers spending their real or anticipated tax “refunds.” As the Tax Foundation notes, “more and more tax filers are seeing the IRS as a source of income, not something to which taxes are paid.”
Of course, in a perfect world of budget surpluses as far as the eye can see, a huge reduction of those on the tax rolls would be cause for celebration. But this is 2010, not 1998, and in February Uncle Sam managed to run up his biggest monthly deficit ever, $221 billion — even with only 19 business days in the month.
Already in fiscal 2010 the red ink is running at a rate 10 percent higher than that of a year ago. And while opinion polls show Americans are alarmed by the spending numbers, the tax trends show that because they aren’t paying income tax, more than 51 million workers have no connection to the true cost of the government’s largess.
Just as Michelin-starred French restaurants still don’t put prices on menus handed out to the “ladies” who presumably aren’t paying the tab, the current system distances 36 percent of the working population from the bill.
There are political implications to this trend as well — especially if, as many predict, more than half of all employed Americans no longer have to pay up to Uncle Sam.
As political consultant Dick Morris has warned, such a situation would “create a permanent electoral majority that does not pay taxes, but counts on ever-expanding welfare checks from the government.” Obviously, such a “permanent majority” has a huge vested interest in maintaining the status quo, that is, a situation where spending is exploding while the tax base is eroding.
The more fortunate among us deserve to pay a disproportionate share of the nation’s taxes, but American democracy for the last century has been predicated on most workers paying at least a little bit into the system.
That is changing — something to think about come April 15.
Not too taxing
April 15, tax day, is dreaded by fewer and fewer folks, according to a Tax Foundation study. They found a record number of American tax filers — 36.3% in 2008 — with zero tax liability is leaving Uncle Sam to go hat in hand to ask foreign countries to fund our debt.
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