Monday, April 18, 2011

45% US Households Pay No Federal Income Tax

That number is too large, and the breakdown is very predictable. Lowest income households are the largest fraction, but there are plenty of higher earners who pay little to no taxes as well.

There are good and bad reasons to have tax credits/deductions, but ideally we shouldn't. Good reasons should be dealt with differently (public college should be free for in-state students), and bad reasons should, well, just be eliminated.

The vast majority of households should pay income taxes. I'd be willing to lop off the bottom 10-20% for zero liability, but it should be done as a tax bracket: the bottom bracket (up to, say, $15k) pays 0%. No dependents, no housing deduction, no deduction for other income taxes paid, no deduction for charitable contributions.

The simple removal of those would be bad for many people, however, so it would need to be done in conjunction with overall tax overhaul that would cause taxes for most people to not change too dramatically. For political reasons this is not likely to happen any time soon.

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