Was Mitt Romney correct in a recently surfaced videothat 47 percent of the voting public pay no federal income tax? The figure that he cited originates from a 2011 study conducted by the Tax Policy Center.Although the figure in the study is actually 46.4 percent, the basic claim is true — there is a large swath of U.S. citizens who pay no federal income tax whatsoever.
Who are these people, and why are they exempt?
“They’re either paying payroll taxes or they’re the elderly,” Heather Boushey, senior economist at the Center for American Progress, said in an e-mail. “Only 7.9% of households do not pay any federal taxes, but that’s because they’re either students, on disability, or unemployed.”
These groups may not pay federal income tax, but that's different from paying no taxes whatsoever. “Everyone pays taxes of some sort,” Boushey said. “If you have a job, you pay payroll taxes. If you buy things, you pay sales taxes. And people pay taxes to their state and local governments.”
Other groups who pay no federal income tax include retirees and people earning $20,000 a year or less. “The elderly don’t have to pay income tax on their Social Security benefits, while low income workers qualify for the Earned Income Tax Credit or the Child Tax Credit,” Boushey said.
Read ahead to see the 10 states with the highest number of people who pay no federal income tax. The rankings are from the Tax Foundationand are from 2010, the nonpartisan tax research group’s most recent list.
Eight of the states are considered red, one is leaning toward President Barack Obama and one is a swing state.
By Daniel Bukszpan
Posted 20 September 2012
Total Returns: 1,134,626
Returns With Income Tax Liability: 699,598
Returns With No Income Tax Liability: 435,028
According to the U.S. Census Bureau, the average number of persons per household in the state of Utah is 3.04. This is higher than the national average, and it’s one possible explanation for the large number of people paying no income tax.
“The two credits that cause most people to be nonpayers are the Earned Income Tax Credit and the Child Tax Credit, both of which increase with the number of children in your family,” Nick Kasprak, analyst and programmer at the Tax Foundation, said in an e-mail. “Utah might be on the list because it has, on average, the most people per household of any state.”
Total Returns: 10,995,576
Returns With Income Tax Liability: 6,760,829
Returns With No Income Tax Liability: 4,234,747
According to Kasprak, Texas doesn’t rank very high in terms of the factors that contribute to high populations of nonpayers. It is, however, second in the nation in terms of recipients receiving refundable child tax credits.
“This indicates a higher-than-normal percentage of low-income people choosing to have children,” he said. “So that is likely a big part of the nonpayers picture there.”
Total Returns: 663,291
Returns With Income Tax Liability: 407,579
Returns With No Income Tax Liability: 255,712
Like Texas, Idaho lacks many of the attributes typical of a state with high numbers of nonpayers. However, it has the sixth-highest rate in the nation of tax returns claiming unemployment compensation. “The jobs picture in that state likely contributes to the nonpayers phenomenon,” Kasprak said.
An analysisfrom the Center on Budget and Policy Priorities, which states that a lowered unemployment rate would increase the number of people paying income tax, bears out this observation. As long as unemployment stays high, so will the number of people paying no income tax.
Total Returns: 913,001
Returns With Income Tax Liability: 560,068
Returns With No Income Tax Liability: 352,933
Of all the tax returns filed in New Mexico in 2010, almost 39 percent showed no income tax liability. The state is the only one on the list that is leaning toward Obama, according to The New York Times.
Total Returns: 2,051,823
Returns With Income Tax Liability: 1,255,957
Returns With No Income Tax Liability: 795,866
According to the Bureau of Labor Statistics,the mean annual wage in South Carolina is $38,560. This is below the national average of $45,230, and helps put it on this list.
“South Carolina ranks 45th out of 50 states in average income per return,” Kasprak said. “It also has the fifth-highest percentage of returns with incomes under $50,000.”
Total Returns: 1,224,333
Returns With Income Tax Liability: 748,945
Returns With No Income Tax Liability: 475,388
In terms of mean annual wage, Arkansas is in worse shape than South Carolina. Its average salary is $36,340, according to the Bureau of Labor Statistics.
Accordingly, Arkansas also has a higher percentage of tax returns reflecting low annual salaries. “Arkansas has the third-highest percentage of returns with income under $50,000,” Kasprak said.
Total Returns: 9,631,252
Returns With Income Tax Liability: 5,879,430
Returns With No Income Tax Liability: 3,751,822
Residents of Florida, the only swing state on the list, aren’t in the nation’s top 10 for the Earned Income Tax Credit or the Child Tax Credit. However, it has the second-highest percentage of returns reflecting income under $50,000 and the sixth-highest percentage of returns with no taxable income.
The state’s large elderly population is a major factor in its high ranking. “Florida has the highest percentage of returns with taxable Social Security of any of these states,” Kasprak said. “That indicates a higher-than-normal percentage of elderly people, who, in general, have less taxable income and are more likely to be nonpayers.”
Total Returns: 2,102,251
Returns With Income Tax Liability: 1,254,979
Returns With No Income Tax Liability: 847,272
Almost 850,000 Alabama households filed tax returns for 2010 that reflected no liability. According to Kasprak, the state ranks third in the nation for percentage of Earned Income Tax Credit recipients, and the mean annual salaryin the state is $39,180, according to the Bureau of Labor Statistics. As a result, more than 40 percent of the state’s residents paid no income tax.
Total Returns: 4,589,611
Returns With Income Tax Liability: 2,639,561
Returns With No Income Tax Liability: 1,950,050
Georgia is home to nearly 2 million households that pay no income tax. This puts it near the top of the list of states where the 47 percent reside.
“Georgia is number two for returns with no taxable income,” Kasprak said. “It’s also fourth for returns receiving the refundable child tax credit.”
Total Returns: 1,283,495
Returns With Income Tax Liability: 712,035
Returns With No Income Tax Liability: 571,460
Mississippi tops the list because it comes in first place in numerous categories. “Mississippi ranks number one for returns with no taxable income, for Earned Income Tax Credit recipients and refundable child tax credit recipients,” Kasprak said.
The state is also “last in average income per return,” he said. “By most measures, it’s the poorest state in the country, so that is why it has so many nonpayers.”