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Rich vs. No Income Tax American Households

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Would you choose being wealthy and paying income tax or making  little enough to escape income tax? Americans today have a far greater chance than ever before of being in the latter group.

Sometimes there are statistics that you really need to meditate on for awhile. They open the door to critical thinking about American society. They shed light on a host of hot political and public policy issues. This is especially true for rich versus poor issues, taxes, justice and equality. First, note the number of households in the United States: now at 115 million, which equates to an average of 2.6 people per household.

Now, think for a few moments and guess the answers to this question: What fraction of households have assets of $1 million or more and what fraction will pay no federal income tax for 2009?

Take a moment, think seriously about what these two fractions might be. To have net assets of $1 million or more certainly signifies people at the top of the economic ladder, but is a far greater number than the super-rich, because a million bucks is not what it used to be. A lot of ordinary people seeing themselves as middle class, but making good incomes and probably older, even with lower house values, can have wealth at this level.

And to pay no federal income tax certainly covers people at the bottom of the economic spectrum, but not necessarily just the very poor. They too may see themselves as middle class or, for some, the working poor. For example, for 2009, a family of four with two children under 17 could have made $50,000 and escaped paying any federal income tax because of various tax credits and other benefits. Many two income households could avoid paying federal income tax, because of low but rather typical salaries.

Here are the answers to the above question. Households with $1 million or more in net assets number just 7.8 million or 6.8 percent of the national total. Households that will pay no federal income tax for 2009 number 54 million or 47 percent of the national total.

Thus, there are about seven times as many households paying no federal income tax, nearly half the nation’s households, as there are having $1 million or more in assets.

If a high income rather than assets is considered, then note that about 16 percent of households have annual incomes of $100,000 or more. This means that a lot of households with pretty high incomes have not accumulated the wealth level of $1 million in assets. Households with incomes of $250,000 or more, however, number just under 2 percent of the nation’s total. This is the group that will see higher taxes from the new health care reform legislation and now pays about half of all taxes. This group equates to about 2.3 million households and 6 million people that really are rich in terms of both wealth (assets) and income. These people can afford to pay more taxes because they have benefited disproportionately from past tax cuts and probably are not hurting much in this recession.

All these numbers shed some light on the considerable economic inequality that has gotten steadily worse in recent years. Yes, the rich have become richer, the poor poorer, and the middle class devastated, probably worse than ever, because the current Great Recession for millions of people is really just as bad as the Great Depression – financially and psychologically.

Take away the no income tax and high asset households and you have about 46 percent left or 53 million households with about 138 million Americans. This is a better view of the shrinking, at-risk middle class, households trying to survive in a cruel society with high economic insecurity. These people should be more worried about sinking into the lower class, no income tax paying group, than dreaming about rising up into the wealthy high tax paying class. The bitter truth is that upward economic mobility has largely become a myth, like the American dream, more like winning the lottery than a reasonable expectation from working hard.

Maybe all this explains why there are so many angry, anti-government Americans attracted to the tea party movement, and firmly entrenched independents fed up with both major political parties because they more serve corporate rather than public interests. With an enormous national debt, high unemployment that will not go away, and increasing number of people losing homes and needing free food things are likely to stay bad or get worse for a lot of people.

Dwell on this: Do you really think that voting in different Democrats or Republicans will return the nation to a healthier condition? And this: Does having a positive attitude about the future require delusional thinking, or heavy drug use to avoid thinking about it?

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About Joel S. Hirschhorn

Formerly full professor Univ. of Wisconsin, Madison, and senior official Congressional Office of Technology Assessment and National Governors Association. Author of four nonfiction books and hundreds of articles.
  • Kawoin


  • Kawoin

    Every situiation is different, you cant say JUST BECAUSE A FAMILY OR A GROUP OF PEOPLE AREN’T MAKING $98,000 OR MORE A YEAR THEIR STUPID,UNEDUCATED, UNETHICAL,etc NOW THATS JUST PLAIN IGNORANT. Every city and state is different HAVE IT EVER ACCORD TO YOU THAT MAYBE THAT FAMILY OR PERSON WHO’S MAKING LESS THEN $19,000 A YEAR WENT TO A PUBLIC SCHOOL, or didnt attend a private school because their family wasnt able to afford it!? I believe the education system play a roll in this too, ALL EDUCATION IS NOT EQUAL mister! 40 years ago America was ranked number 1 in all areas of the education systems, RECENT STUDIES SHOW Among the 30 developed countries AMERICA RANK 24 IN MATH ( WHICH IS ALMOST LAST ) 16 in science ( which is almost in the middle ) and 10 in reading! SO ITS NOT JUST THE “DUMB UNEDUCATED PEOPLE YOU WOULD CALL” fault that their in the situation there in , maybe its alot of other things that lead to it! EVERY AMERICAN FAMILY CANT AFFORD TO GO TO MERCER COLLEGE OR A VERY OUTSTANDING COLLEGE YOU GREEDY COLD HEARTED REPUBLIC. FYE im a die hard democrate and ONE THAT WOULD BE CONSIDERED “LOW INCOME” BECAUSE IM NOT YET MAKING $50,000 OR $100,000 yet! SO YOU SHOULD THINK BEFORE YOU TYPE NEXT TIME HAVE A DAMN HEART… JUST LIKE YOU WANT FOOD ON YOUR TABLE NICE CLOTHES ON YOUR CHILDREN BACK SO DO OTHER AMERICANS YOU KNOW ” THE DUMB ONES UNEDUCATED ONES” That’s the name you use for someone who isnt making over your gross income RIGHT?

  • Jay

    I live in the area where median price for home $600,000 (and at that price you can’t buy single family house, it’s a townhome around 1500-1700sq.ft.) to go to a dentist and put a crown costs $2,000. To rent a 2 bedroom condo $1,600-1,800/mo. Only association fee in condo complex runs at $200-$300/mo. Average income per household here is $98,000. But that doesn’t mean that people have lots of money on their hands, because everything is expansive. So, according to this statistics almost each household here are in top 50%. That means each household here pays taxes for themselves and for that 47% who are not paying anything. Do you think this is fair? People here have good jobs because they spend lots of time and money to get good education, many have student loans to pay. Is this fair tax system when smart, hardworking, educated , productive members of society should pay for lazy, stupid, uneducated? That is exactly why “upward economic mobility has become a myth” Middle and upper middle class endures all the tax burden, while almost half of the country do not contribute at all.
    Regarding super reach: OBAMA tries to vilify business and business owners. But think about that: Bill Gates, the richest man in America has total net worth of 53 billion (That he created along with many jobs during decades)
    OBAMA wants to spend 3,552 billion in one year. Bill Gates made profits. OBAMA made nothing. Bill Gates did not force anybody to buy his products. OBAMA has IRS agents and police to “help” collect.
    So, who is got your money? Greedy billionaires or greedy government?

  • maskay

    The stat I would be interested in is how many people not only don’t pay taxes, but get money through the refundable credits (EITC, Additional Child tax, Making work pay credit). I have a second job as a tax preparer, and it can be very frustrating to prepare taxes for a someone who is disappointed because on their $20,000 income they are only getting a $4000 refund (and their tax liability is $0). I don’t begrudge the $0 tax liability, I can see how it is very tough to live and raise kids on that low of an income. But, couldn’t those credits be put to better use, such and paying the deficit or programs to help the working poor? It is also frustrating to think that I work to give someone else money back at tax time.

  • Clavos

    The tax system needs a revamp…

    It sure does, and one of the top candidates to replace it in such a revamp should be the FairTax.

  • vapor- they fought against taxation without representation. You cannot have a functioning government that provides services without some form of taxation. Our founding fathers knew that.

    The question rides on what is too much to bear for people.

  • The tax system needs a revamp just like our health care system. Just think of how many citizens and non-citizens don’t even submit income taxes. It is what our fore-fathers fought against the British – against taxation. People came to get away from the gov’t abuse of taxes. Now we’re right back where they started from.

  • John Wilson

    Shouldn’t capital gains be taxed as simple income?

  • The real reason they are justified is that those people can afford it. Any other reason is just rhetoric.

  • Tim

    I take issue with the idea that an increase in tax rates on those making $250,000 or more per year is justified because those people have benefited disproportionately in the past and need to make up for it going forward. How does this standard apply to those who are new to the work force and/or aspiring to make $250,000+ in the future? If you want to argue that the new/proposed taxation levels are the appropriate and fair levels, that is your opinion, but to say that’s the case for the reasons mentioned in this article just don’t cut it.

  • Doug Hunter

    “shouldn’t payroll taxes (SS, etc.) be applied to capital gains?”

    Do top capitalists need that money to shore up their social security account or are you just drooling at the prospect of redistributing it to yours?

  • John Wilson

    Since many top capitalists now take their winnings as capital gains instead of income (notably, hedge fund operators) shouldn’t payroll taxes (SS, etc.) be applied to capital gains?

  • Doug Hunter

    Doug you bought a 4 bedroom house in 2000 for $45,000?

    Sure, it was brick with a 1 car garage built in the 50’s, but in a stable working class neighborhood. Houses can be found there now in the $50-60K range. Although it ain’t got a beach, you’d be 3 miles from the large, relatively undeveloped lake Texoma.

    I did a quick search and pulled up this as a nearby example Not a bad little house for the money. The built in payment calulator indicates a 30 year note with $11k down would leave you with a $240 payment. Taxes might run $1K after homestead exemption.

  • Arch Conservative

    Doug you bought a 4 bedroom house in 2000 for $45,000?

    How’s the weather this time of year in Antarctica?

    “The IRS got there ahead of you. They are pressuring Israeli and other non-US banks to close the accounts of Americans with investment income.”

    I see the IRS is hard at work revamping their image among the American people. Why don’t they just slip me a rufie, steal my kidneys, and leave me in a bathtub of ice with a note to seek medical attention.

  • Ruvy


    The uber-rich can afford to ship their money overseas (for now, I think that loophole is going to close up)

    The IRS got there ahead of you. They are pressuring Israeli and other non-US banks to close the accounts of Americans with investment income. Given the choice of tangling with the IRS and losing a customer, most Israeli banks will lose the customer. So, it’s going to start to get tight for American investors overseas who wish to use foreign banks. Those in Israel can always ditch their US citizenship and tell the IRS to go to hell. If they came after me, that is exactly what I’d do. But folks in Panama or the Phillipines may not have choices like that….

  • Doug Hunter

    I really do feel for people living in high cost of living areas. I bought a house around 2000 with 4 beds and 2 baths in a good neighborhood within walking distance of a school for $45,000. My payments were $380+/month on a 20 year note. There are lots of people who can get by with a $300 house payment and ‘poverty’ income with no problem. Once the house is paid for Social Security will get you by so no need for retirement savings. Most places have highly subsidized community colleges your kids can go to for the first to years then finish up at a decent school on loans that they can pay back so don’t worry about the kids college fund. If you have a poverty level income you get free healthcare for the kids, food stamps, free lunches, WIC, etc., etc.

    There are alot of people out of the rat race living as I described. I’d rather live like that than with $100,000/year trying to keep up with the Joneses filling up a McMansion with useless crap on credit cards. You can feel sorry for them all you want, they’re probabably out barbequeing and drinking beer with friends right now while the rest of us are figuring out if we should take an extra job to make the boat payment or send our kids to a better prep school.

  • The uber-rich can afford to ship their money overseas (for now, I think that loophole is going to close up) and the under $50K group makes money, especially if they have kids (EIC) but for those of us just above that or below the high point, we are going to pay. Which is fine. I’ve already told my kids not to expect a dime when I die. I’ll use any savings I have just to stay afloat until I’m eventually labeled poor. Yup. We’ll all be sinking in the same boat soon enough.

  • Arch Conservative

    It’s nice to see some reasonable new faces around here like Alano, Article and Jeff Hunter.

  • Families with incomes under $50,000 still have to pay payroll taxes, mortgages, health and education expenses, car payments, etc., with a limited amount of cash. They are not getting a free ride.

    Let’s not shed too many tears for that 6.8% at the top. After they pay their income taxes and other expenses, they still have plenty of spending money. And if most of their income is from capital gains, how much income tax are they paying? Not nearly enough.

    The 47% statistic is meaningless without context. The snarky blog Wonkette had a rare and wonderful serious moment when the AP [note to Arch: they are a big player in the much hated Mainstream Media] decided to run a [Heritage Foundation inspired?] widely distributed piece on the statistic:

    All that this statistic shows – and yes, deductions and credits may be over the top at the moment, but it’s a fucking great depression is why – is how wide the wealth gap has become here, because 50% of the country absolutely needs most every cent to maintain the basic consumption levels required to keep this economy propelling forward. Want to spread the tax base more broadly? Spread the wealth, baby!

    If we could just find useful jobs for people to do instead of telling them to drain the equity from their homes every year, maybe some of these wacky wacky statistics would resolve themselves.

  • Jo

    by my calculations, around 5% of these individuals are U.S. Military serving tax-exempt in Iraq and Afghanistan. Something to keep in mind when looking at that figure.

  • Arch Conservative

    While I wouldn’t go so far as to say that the idea of upward economic mobility has become myth, I will give you that it is on it’s way to becoming myth.

    You’re correct in that both major political parties have had a hand delivering us to where we now find ourselves.

    The Bush administration with a GOP Congress and now the Obama administration with a Dem congress have both horribly mismanaged our finances and economic policy. The party hacks and supporters on both sides try to convince us that their particular way of mismanaging is in fact the right thing to do.

    You don’t need to be an economist to understand the basic rules of finance. While some may consider it trite and oversimplified, I have always felt that the analogy of our national government’s finances to those of a family of four or an individual is pretty apt. The bottom line is that you should not spend more than you have regardless of how good some purchase may make you feel. You should not spend what you do have on mostly frivelous things either.

    It’s quite clear that politicians spend our money where it will by them the most influence and opportunity to gain and/or maintain their power in the Federal government. Special interest rule the day in Washington. The most sickening part is that the politicians actually expect us to believe they give a damn about anyone or anything but themselves.

    I’m sure there are many well intentioned people that go to Washington but then we all know we’re the road that is paved with good intentions leads to.

    Some may look upon the Tea Partiers and other malcontents and say…..”how uncivil” or “gee they seem awfully unruly.” I look upon them and say “what tremendous restraint.”