Why People Not Paying Income Taxes Hurts the Economy

As the 2016 Presidential Election progresses, a topic we hear time and again is how the

candidates will bring fairness and accountability to the tax payer. More specifically, how the highest

earners will be held responsible for contributing their share to the government. Clinton says she will add

an additional tax to earners over $5 million, Sanders will increase the bracket for top earners to 52%, and

Trump will align the highest brackets closer together. (n.d.) What we fail to hear is 45% of Americans

paid no taxes in 2015 and how that number is on the rise. (Bentley, 2015) The country is divided into

people that make the money and people who seemingly take the money. Why do so many Americans fail

to pay taxes and how is the economy negatively impacted?

A core reason people do not pay income tax is because of the tax credits available to them.

Income tax collection affords the country many benefits, such as: college tuition grants, discounted home

ownership, child care coverage. (n.d.) Essentially the family that is receiving the tax credit is not paying

into the sustainability of the credit for which they receive. This cycle of events means households that do

not collect the credit are supplying the means for the credit to occur. For example, the Child and

Dependent Care Credit is a benefit of $3,000 for one child and $6,000 for two or more children. The

percent you receive of the $3,000 or $6,000 depends on your overall income. (n.d.) The idea is the credit

allows parents to afford to work, because the credit covers the cost of daycare or other child management.

The credit ceases to exist if there is no money to support it. Therefore, why would higher earners, who do

use the tax, contribute to it instead of all earners, including those who use the credit, contribute?

A smaller, albeit powerful, wave sweeping individuals and businesses is the idea that income tax

is illegal and therefore they are not paying it. Since individual income tax is one of the countrys largest

sources of income, a loss to income tax collection can create havoc on the economy. (Bouman, n.d.)

Another crucial to aspect to this new phenomenon is it contradicts an idea that has been instilled in us

since we were children, two things in life are certain, taxes and death. Furthermore, those that evade taxes

will be punished. However, the punishment is not happening and the economy is suffering because of it.
As of 2000, 23 companies came out publically that they will not pay taxes and have encouraged

thousands to join their cause. In response, the IRS shared that due to limited resources, they must focus on

the issues that will give them the most revenue in return and they do not see this issue as one worth

pursuing. (2000) Additionally, the government has self-sabotaged by creating new rules in the 1998 IRS

Reform and Restructuring Act that makes it increasingly difficult for the agency to pursue people and

businesses that undermine the tax system. (2000) Knowing that income tax is a sole contributor to the

economy, the government needs to enforce violators of the system in order to maintain the tax income

flow.

Another credit used to reduce someones income tax liability is the Earned Income Credit. The

credit lowers the income bracket for individuals or families that do not make more than a predefined

amount. For example, a married couple with three or more children must have an income limit of

$53,267. (n.d.) Instead of providing opportunities for people to use this credit and not pay taxes, the

government should seek options that will allow people to pay taxes. The most significant move the

government could make is to eliminate the tax credit, raise minimum wage, and enforce income tax.

Opponents will say that increasing the minimum wage will negatively impact income tax because more

people will lose their job and still be unable to pay the income tax. However, minimum wage and

unemployment is volatile, depending on market conditions and the factors used to gather the data. For

instance, economists could use number of jobs or number of hours worked, so the measurement is not an

exact science and should not be used as a reason to cease pursuing the concept of eliminating tax credits

by increasing minimum wage. (Bouman, n.d.)

The general term for the wealthiest individuals are the top 1%. This select group earned 17% of

income in 2009 and paid 37% of all income taxes. (Sahadi, August ) A much smaller subset of high

earning individuals paid no income taxes. For example, in 2009 six of the highest earners paid nothing in

income tax. (Sahadi, 2012) Although their individual tax returns are not available to the public, many

speculate that it is our own governments complex, loop hold ridden system that allows people to get
away with not paying income taxes. For instance, two deductions can cross out income tax liability,

charitable donations and foreign tax credits. The charitable contribution donation is relaxed, someone

may donate to their religious organization or fraternal society. (n.d.) The foreign tax credit offers a tax

break for someone who receives income, war profits, or heavy taxes from a foreign country. (n.d.)

Basically, the wealthy can create a business in a foreign market and because they are taxed in the host

country, they receive a benefit in the US, so they are not taxed twice. If the wealthiest people pay the most

money in income taxes, the top tier of the wealthiest payment would means millions more paid into the

system. What is needed to achieve this is tax reform to a simpler system in which everyone is held

accountable to income tax.

The opposition will argue that people who do not pay taxes are not in a position to pay because

they are unemployed, and they are right. Although unemployed individuals still need to pay taxes, it is

only if they made more than approximately $14,000. (Reeves, 2013) Even then, there are numerous

credits for people to use in order to lessen the burden of paying more, such as the cost to seek

employment and having dependents. In addition to the unemployed and underemployed not paying taxes,

they often receive money back, through the Earned Income Tax Credit. I am not advocating for the

unemployed to contribute more to taxes. However, it shows that recessions and tax credits can impact tax

collection in the long term.

There is a wide spectrum of reasons why nearly half of the country does not pay income taxes,

from the wealthiest few in the country, to the low income, to the people that flat out oppose the tax

system. The irony to the situation is the government controls the tax income flow, by offering credits or

failure to impose tax law, and the economy is ultimately impacted by the decisions the government

makes. We are hurting ourselves. In 2015, the individual income tax was the sole source of income of the

US, at approximately 1.5 billion dollars. (Bouman, n.d.) If the percent of people paying income tax rose

by a modest 10%, we would see revenue increase by $150 million dollars. This money could be used to
fund public works, drive down the budget deficit, or stabilize the money supply. The US government

needs to increase the number of people paying income tax in order to support the economy.
Works Cited
Bentley, G. (2015, October 7). In 2015, 45 Percent Of Americans Will Pay No Federal Income Taxes.
Retrieved from The Daily Caller: http://dailycaller.com/2015/10/07/in-2015-45-percent-of-
americans-will-pay-no-federal-income-taxes/
Bouman, J. (n.d.). Section 4: United States Federal Government Revenues. Retrieved from Inflate Your
Mind : http://www.inflateyourmind.com/index.php?
option=com_content&view=article&id=47:section-4-united-states-federal-government-
revenues&catid=6:unit-6&Itemid=74
Bouman, J. (n.d.). Section 5: Equilibrium Price and Quantity. Retrieved from Inflate Your Mind :
http://www.inflateyourmind.com/index.php?option=com_content&view=article&id=93:section-
3-united-states-federal-government-expenditures&catid=12:unit-2&Itemid=116
Charitable Contribution Deductions . (n.d.). Retrieved from IRS: https://www.irs.gov/Charities-&-Non-
Profits/Charitable-Organizations/Charitable-Contribution-Deductions
Child and Dependent Care Credit at a Glance. (n.d.). Retrieved from IRS: https://www.irs.gov/Credits-&-
Deductions/Individuals/Child-and-Dependent-Care-Credit
Comparing the 2016 Presidential Tax Reform Proposals. (n.d.). Retrieved from Tax Foundation :
http://taxfoundation.org/comparing-2016-presidential-tax-reform-proposals
Do I qualify for EITC. (n.d.). Retrieved from IRS: https://www.irs.gov/Credits-&-
Deductions/Individuals/Earned-Income-Tax-Credit/Do-I-Qualify-for-Earned-Income-Tax-Credit-
EITC
Reeves, J. (2013, March 13). Jobless last year? 5 must-know tax tips. Retrieved from USA Today:
http://www.usatoday.com/story/money/personalfinance/2013/03/12/taxes-unemployed-
irs/1982071/
Sahadi, J. (2012, June 7). 6 of the richest owed no income tax. Retrieved from CNN Money :
http://money.cnn.com/2012/06/07/pf/taxes/rich-who-owe-no-income-tax/index.htm?iid=EL
Sahadi, J. (August , 30 2009). How much should the rich pay in taxes? Retrieved from CNN Money:
http://money.cnn.com/2012/08/30/pf/taxes/rich-taxes/index.html?iid=EL
Saying Income Tax Is Illegal, Business Owners Quit Paying. (2000, November 19). Retrieved from The
New York Times: http://www.nytimes.com/2000/11/19/business/19TAX.html?pagewanted=all
Video: Who Doesn't Pay Federal Taxes? (n.d.). Retrieved from Tax Policy Center :
http://www.taxpolicycenter.org/resources/video-who-doesnt-pay-federal-taxes
What Foreign Taxes Qualify for the Foreign Tax Credit . (n.d.). Retrieved from IRS:
https://www.irs.gov/Individuals/International-Taxpayers/What-Foreign-Taxes-Qualify-For-The-
Foreign-Tax-Credit%3F