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The April 18th returns are now behind us and we are looking into another year of making income and paying taxes. However, looking back to the just-concluded returns, analysis project that about 45% or 70 million U.S. citizens will not owe any income tax for the year 2010. This is a slight drop from last year where 47% of Americans owed IRS no dues for 2009. This means that about half of Americans pay federal income tax while the other remaining half does not. However, most of these 45% non-taxed households pay state taxes through property and sales taxes and through state income tax. They also get to pay federal non income tax through FICA payroll taxes for the national Medicare program and Social Security. It is only at the federal income level that they are not liable for paying taxes.
How Do 45% Households Get to the No-Tax Category?
U.S. households are working their best level to get IRS refunds and to avoid paying as much federal income tax as possible. Through the various tax deduction incentives provided by the government, more and more households are paying less and less in terms of income tax. These tax avoidance incentives include taking life insurance and retirement plans, using hybrid cars, buying a house, buying bonds, spending on research, and adopting children (among other tax deductions).
How Does This Play Out in the Tax Reforms?
Though a majority of the 45% no-tax group are low income earners, there are many middle class and high income earners who are getting huge tax deductions through the aforementioned deductions routes. The income tax problem is that most Americans do not seek the direct benefits of these tax incentives but rather, participate in the incentive only to avoid tax and get tax refunds. In fact, there are many Americans who position themselves to make an income out of this current tax structure. These excessive deductions sort by Americans have resulted in the IRS paying out about $100 billion in tax refunds.
So, How is a Tax Reform Likely?
The truth is, the federal government still requires funds to run the national business. Therefore, for comprehensive reforms to be established, some of the main focus of change needs to be the income tax problem of the excessive list of incentives that we all look forward to claim every year. In the recent past, the Congress has shown seriousness in looking towards these reforms. However, the question that remains is whether the tax payers are willing to let go of these deductions in a bid to embrace the reforms.
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Source by Robert L. Daniel
