Who does NOT pay income taxes

Georgene Rice interviews  Curtis Dubay a Senior Policy Analyst in tax policy with the Heritage Foundation to discuss who does NOT pay income taxes.

Georgene: According to CNN.com 45% of Americans don’t  pay anything  in Federal Income Tax. Could you tell us the implications of that amount of people not paying taxes?

Curtis: It is a real figure, there is no getting around that. Almost half of the people in the United States pay no federal income tax. There is two reasons for that. First, it is due to our tax rates and the tax structure. Second, it is due to the tax credits that people earn. People are taxed on a whole array of taxes, but the income tax is the one tax that provides most of the things that we see the federal government providing us.

Georgene: How does this play into the political tug of war of our national budget? One side says the rich should have their taxes increased, others say spending needs to be brought under control.

 Curtis: I don’t think it is going to play too much into what is going on in Washington, D.C. right now because the President has singled out who he calls the rich, those making $250,000 or more. Those are the only folks who he wants to see pay more. Everyone else wouldn’t be singled out for a tax increase. What it could lead to though is a value added tax, which is essentially a nationwide sales tax. That could bring those folks back into the tax code.

Georgene: How likely is that to be embraced by either the Democrats or the Republicans, as we see a presidential election coming up in 2012 and as we face some pretty serious decision making with respect to our future budget and the debt ceiling?

Curtis: I think it is highly unlikely unless there is some kind of grand bargain down the road in which we basically get rid of our present tax code and the value added tax is its substitute. The Heritage Foundation would only support that if the 16^th Amendment which provides Congress the right to tax our incomes would be completely repealed.

Georgene: One of the things that is being proposed, I believe by the President’s Debt Commission, was that the hundreds of tax breaks that are on the books be eliminated in part or almost completely. Tax breaks reduce federal revenue by about $1.1 trillion every year.

Curtis: We are all for getting rid of loopholes. But, there are some provisions that are justified.  We are for going through them and getting rid of those that are not economically justified, and then lower the tax rates by the amount that those tax breaks would raise.

Georgene: So, for the average tax payer today who is looking back over the amount of money they paid over the course of last year, and anticipating what they will owe in 2011, what should we suggest to our lawmakers to help deal with our current financial problems?

Curtis: The first thing to say is, “cut the spending now”. Assume the government doesn’t cut spending or deficit spend, all our taxes would double in order to pay for the budget. A family of four making $50,000 a year would pay $4,000 more in taxes just to keep the federal government going.

Georgene: What do you think of Standard & Poor’s threat of lowering America’s credit rating?

Curtis: We are finding out now that we are in a very real situation, that requires our immediate attention. Maybe it will be a wakeup call to those who are ignoring our major problems and direct their attention to our debt, which is an existential threat to our nation right now.

Georgene: Do you think this will emerge as a major issue in the 2012 election?

Curtis: I think it will be the issue in the 2012 election.