Wednesday, September 26, 2012

The Fiscal Costs of Non-Taxpayers

From the Tax Foundation:
There has been growing concern recently about the rapid increase in the number of “nonpayers”—those Americans who have no income tax liability because of the numerous credits and deductions in the code. As of 2010, 41 percent of tax filers—some 58 million in all—had no income tax liability after taking their credits and deductions. There are currently more Americans off the tax rolls than at any time since 1940, when the income tax became a “mass tax.”
Aside from the revenue impact of not having 58 million Americans pay income taxes, economists worry about the social and political effects of having so many people disconnected from the cost of government—a phenomenon known as fiscal illusion.[1] The concern is that when people perceive the cost of government to be cheaper than it really is, they will demand ever more government benefits because they either don’t feel the cost directly or believe that others will be paying those costs. Indeed, when one takes into account those who do not file, about half of all households pay no federal income tax, making the situation particularly worrisome in a majority-rule democracy.[2]
Despite these extensive concerns, there has been surprisingly little investigation of any possible linkage between the growth of nonpayers and the growth of government spending or government benefits. After tracking this trend for more than a decade, Tax Foundation economists set out to explore the fiscal consequences of the growing number of Americans being taken off the income tax rolls.
Continue here.

No comments: