For About One-Third of U.S. Workers,
Income Tax Is No Burden At All

April 5, 2000
From Correspondent Brooks Jackson

 

WASHINGTON, Pennsylvania (CNN) -- While millions of Americans struggle with federal income tax forms as the April 17 deadline for filing approaches, they may be surprised to learn that about one in three workers pay no taxes.

Dislike for federal taxes has deep, historic roots in the western Pennsylvania town of Washington. In 1794, it took federal troops to put down a tax revolt known as the Whiskey Rebellion. That protest was led by a homeowner.

At that same house today, there is no sign of a tax revolt. That could be because resident Susan Kinkade, like tens of millions of other working Americans, pays no federal income tax at all.

Divorced, and with two sons, Kinkade earned $23,000 last year ñ a lower-middle income that places her well above the official poverty line.

Earned income credit helps

Yet Kinkade's federal income tax bill was less than zero. "I paid about $85 only in federal taxes that I had taken out of my paycheck," Kinkade said. "But when I did my income tax return, because of the earned income credit, I was able to get back about $1,500."

The earned income tax credit is for working adults who earn less than $10,200 if childless, or less than $30,580 if there is more than one qualifying child in the household.

The credit reduces the amount of any tax owed and, the IRS says, is intended to offset some of the increases in living expenses and Social Security taxes.

Nearly half of all households pay more in payroll taxes -- for Medicare and Social Security -- than they do in federal income taxes.

About one out of three workers pay no federal income tax at all. Or, like Kinkade, they actually receive tax credits ñ literally a check from the government -- a sort of income tax in reverse.

That is not the case across town at the home of Abe and Sue Key, who said they paid more than $17,000 in federal income tax.

Abe Key is the CEO of a nonprofit corporation; she is an attorney. Together they pulled in $94,000 last year, putting them in the top one-fifth all households.

'I think we've become used to it'

And their group -- the highest-earning 20 percent of all Americans -- paid nearly 80 percent of all federal income taxes last year, according to the Congressional Budget Office.

The remarkable thing is that those at the top, the most affluent Americans, are not only paying most of the federal income taxes, they're also paying an even bigger share than they were 10 or 20 years ago, the CBO says.

In 1981, according to the CBO, the richest 10 percent of American households paid 49 percent of all federal income taxes. Last year, they paid 63 percent.

"Yeah, I feel like we're struggling, because we're both trying to work and support our children ... and to understand that we're bearing that burden is surprising," said Sue Key.

But even the affluent aren't complaining all that much. "Well, I think that we've become used to it," said Abe Key. "I think we understand that we have to pay our fair share."

Meanwhile, most U.S. taxpayers are not only paying a smaller share of the income tax burden; as a practical matter, according to the CBO, they're paying lower rates.

In 1981, the CBO says, the average, effective federal income tax rate for middle-income families was 8.3 percent of total income, before any deductions or exemptions.

In 1999, according to the CBO, it was down to 5.4 percent. Even for upper-middle-income families, the CBO says, the effective rate fell from 11.3 percent to 8.4 percent.

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