Taxed Enough Already? Not hardly, says new report.

So-called “tea” partiers may be disappointed

The Tax Policy Center (TPC), a non-partisan policy analysis and collaborative effort of the Brookings Institution and Urban Institute, both Washington, D.C. think-tanks, recently reported that 47% of all Americans will not pay income tax for the 2009 tax year.

President Obama’s “Making Work Pay” tax credits, and his American Recovery and Reinvestment Tax Act of 2009 (Public Law 111-5) have further reduced income tax burdens on Americans.

Because of his initiatives, more than half of all elderly households, families with children, and other Americans will pay no income tax this year. More than 75% of married couples and single heads of households with income between $30,000 – 40,000 will pay no income tax. And more than 90% of all households with children will have no tax liability this year.

The Tax Policy Center estimated President Obama’s policies significantly lowered the tax burden on average Americans, to the extent that 47% of all Americans household will not NOT owe income taxes for the 2009 tax year. That represents a net increase of nearly 11% of all Americans whom will not owe any income tax this year because of his policies.

President Obama’s campaign proposal to zero out income taxes for elderly households with incomes under $50,000 has not yet happened. However, nearly 80% of households already pay no income tax.

The federal government collects slightly less than half its total budget – over $900 Billion – from federal income tax.

So, where does all the money come from or go?

Deductions from paychecks come in many forms. Some states and localities have income taxes, and there are other taxes on purchases of items ranging from beverage alcohol, tobacco, gasoline and other household goods, clothing, furniture, including big-ticket items such as household appliances, and real estate. As well, federal payroll taxes for Social Security and Medicare (FICA), are examples of federal deductions. And then, there are insurance payments, retirement savings, and more.

Clint Stretch, a tax policy expert with Deloitte Tax LLP, said “It’s not uncommon for people to think that their Social Security taxes, their 401(k) contributions, their share of employer health premiums… all of that stuff in their mind gets lumped into income taxes.”

In the current American income tax system, wealthy households – those defined as making in excess of $366,400 in 2006, and which represent the top 10% of private wealth – paid nearly 73% of all federal income taxes collected.

Some feel resentful about a system that benefits everyone, yet which exempts nearly half the country from paying, including Constitutional mandates for national defense, public safety, infrastructure and education. Curtis Dubay, senior tax policy analyst at the Heritage Foundation, said “We have 50 percent of people who are getting something for nothing.” Mr. Dubay didn’t offer an explanation about how public education benefits everyone, and was curiously silent about American military service members, the electrical power grid, federal law enforcement, the federal judicial system, and a host of other federally funded organizations and plans.

Analogously, it’s similar to having three people whom must move an 800-pound object. The three are a strongman-body builder/weight-lifter, an average man, and an 80-pound, 80-year old granny. It would be unreasonable, and unrealistic to presume the elderly widow could do the majority work. It would be reasonable and realistic, however, to expect the strong-man/weight-lifter, body-builder to do the most work. And while the average man could be expected to pull his fair share, no one would expect the granny to be able to do much, if any work.

Corporate Income Tax as portion of federal revenue has declined much more significantly. Since 1946, Corporate Income Tax has declined from nearly 30% of all federal revenue, to a low of 5% in 1982, to about 10% in 2004. Excise Taxes also declined from a high of 20%, to a current low of nearly 2.5%.

During the same period, Individual Income Tax accounted for 40-50% of federal revenue. However, for the same period, 1946-2002, Social Insurance Taxes as a percentage of federal revenue rose from 7.5% to 40%.

As well, TPC analysis shows that since 1946, corporate income tax as a portion of Gross Domestic Product has continually declined, ranging from a high of 6% to a low of 1%, and is now pegged around 2%.

The Tax Policy Center, a non-partisan research center and joint venture of the Washington D.C.-based think tanks the Urban Institute and the not-for-profit Brookings Institution, provides independent analysis of current and emerging tax policy issues for the public, journalists, policymakers, and academic researchers.