This should lock up a Republican victory in 2016: The share of Americans who pay no federal income tax has dropped to 43 percent, according to the Tax Policy Center. In 2009, they estimated that 47 percent of Americans wouldn’t pay any federal income taxes, and that number became a popular conservative talking point, supposedly indicative of America’s dependency and indolence. It was disastrously deployed by Mitt Romney when he was secretly filmed referencing the number at a private fundraiser, connecting it to “47 percent of the [American] people who will vote for the president no matter what, . . . who are dependent upon government,” etc.
The Tax Policy Center has now updated its numbers, and an improved economy and the expiration of some tax measures from President Obama’s stimulus package means 4 percentage points more people are paying federal taxes, back to the levels seen in the 2000s. This number has never been terribly meaningful per se, because two-thirds of the Americans who pay nothing in income taxes do pay payroll taxes (in addition to state income taxes, local sales taxes, etc.), and therefore doesn’t really reflect how many people are in fact contributors to their own government or not — if that is seen as politically salient. (Ramesh Ponnuru went into more detail about the problems with how the number’s used in a November 2011 piece for NR.) But over time, shifts in the statistic can tell us how well the economy is doing, since people earning more are more likely to pay income taxes, and some of the ways in which the federal government is using taxes as a form of social policy.
In fact, in the TPC’s estimates, the metric actually peaked in 2008 and 2009, when the center now estimates that fully 50 percent of Americans didn’t pay income taxes — but that proved to be no “tipping point,” as the percentage in 2010 then dropped to 48 percent. It continued to drop in 2011 and 2012, and actually will rise slightly in 2013, to 43.3 percent. The most obvious factor here is the strength of the economy, which was weakest in 2008 and 2009; its gradual improvement has enabled more Americans to pay more in taxes, pushing some of them away from zero or negative liability. There were also changes in the tax system, though: President Obama’s stimulus package spent a full $288 billion on temporary tax measures, with $237 billion of those changes happening in the individual tax code. These were especially big shifts for individuals affected because most were tax credits: Rather than excluding income from taxation like a deduction, a typical credit reduces, dollar for dollar, the taxes someone owes – and some are “refundable,” in which case they can result in “negative” tax liability, meaning the IRS actually owes someone, usually low-income wage-earners with families, income each year. What did the stimulus do, exactly? The earned-income tax credit was expanded (it’s refundable, so it can reduce one’s tax liability, wipe it out entirely, or make it “negative”), a large credit was created for first-time homebuyers (an $8,000 credit can make a lot of assiduous taxpayers into takers for one year), various credits for energy-efficient purchases and renovations were created, and the child tax credit and the college-savings credit were also expanded.
Most of those provisions have now expired, though, which explains some of the big drop from 47 percent to 43 — but an improving economy will help even more. In fact, the TPC estimates that (under current law) by 2024, just 34.3 percent of Americans won’t owe income taxes. Can you say permanent Republican majority?