30% Pay No Taxes, Oh No!

I’ve often heard the complaint that more than 30% of lower income earners pay no taxes. This is often used to express concern that eventually enough people will not be paying taxes that politicians will have carte blanche to raise taxes as much as they want on the other people.

I decided to do a little more research into this and I found the raw IRS data from 2005 and built the following chart that shows the number of tax returns at each range of income, along with the number of tax returns with no tax due. Notably, 61% of those paying no tax have incomes of less than $15,000. What I found surprising is that while the percentage of no tax returns decrease as the income level rises, it doesn’t drop below 1% until the income group over $100,000.

My guess is that a large part of these no tax returns above $5,000 are attributable to medical expense deductions or similar. While I guess I am still concerned about the relatively high percentage of returns where no tax is due (32.58% for this data, and that completely excludes those where no return was filed at all), the fact that they are spread over a wider income range than I had expected make it much less significant an issue in my opinion.



  1. #1 by whall on November 7, 2008 - 9:45 am

    does “no tax due” mean none paid at all, or no extra tax due in April? I assume it means no tax at all, an example of which would be that tax was withheld all year and then all of the amount withheld was refunded.

    That is some surprising data.

    It’d be interesting to add some more qualifiers to the graph to see trends

    – geographic location
    – race/ethnic background
    – education level
    – sexual orientation
    – religious affiliation

    but of course tax returns don’t collect that info.

    I find it extremely surprising that more people filed in each of the 1-5K and 5-10K than any of the ranges between 15 – 30K.

    whalls last blog post..How much faith is too much?


  2. #2 by Ren on November 7, 2008 - 1:36 pm

    “No tax due” means that for that return, no income taxes were owed and any withholding was refunded.

    I expect the $1-5K and $5-10K include a large number of children that have investment income above the $750 trigger point. It also probably includes a fair number of summer-job teens.


  3. #3 by Ben on November 7, 2008 - 7:15 pm

    OK, that raw IRS data was fascinating (until my legendarily short attention span caught up to … What was I talking about?

    But seriously, that is a lot of people not paying taxes at much higher wages than I expected. Seems like it would be a stretch to account for this with medical deductions etc, though. Maybe it can be accounted for by small businesses. My father used to have quite a large amount of taxable income, but because of the amount of debt and expenses for the business, he often didn’t have to pay a lot of taxes (and he although revenue wasn’t small, he obviously didn’t take that much home).


  4. #4 by Ren on November 7, 2008 - 8:17 pm

    I figured self-employment was probably a factor. Not sure why I didn’t mention it.


Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

%d bloggers like this: