[emphasis added by OP]

The Income Tax System is Broken

43 Percent Of Americans Pay No Federal Income Tax, A Sign That Something's Wrong, Writes Declan McCullagh

April 15, 2009 | by Declan McCullagh

(CBS) On April 15, don't be surprised if the line at your local post office is a bit shorter than usual. That's because your neighbors may not be paying any income taxes this year.

An astonishing 43.4 percent of Americans now pay zero or negative federal income taxes. The number of single or jointly-filing "taxpayers" - the word must be applied sparingly - who pay no taxes or receive government handouts has reached 65.6 million, out of a total of 151 million.

Those numbers come from an analysis published yesterday by the Tax Policy Center, a joint project of the Urban Institute and Brookings Institution. Neither is a low-tax or conservative advocacy group; the Urban Institute was created under the Johnson administration during the Great Society era, and it receives most of its funding from the federal government.

"You've got a larger and larger share of people paying less and less for the services provided by the federal government," says Roberton Williams, a senior fellow at the Tax Policy Center. "The concern is that the majority can say, 'Let's have more benefits, spend more,' if they're not paying for it. It's 'free.' That's not a good thing to have."

By historic standards, today's situation is an aberration. Between 1950 and 1990, the number of owe-no-money federal tax returns averaged 21 percent, dipping to 18 percent in 1986, according to Tax Foundation data. In the 1990s, the owe-no-money percentage hovered around 25 percent of taxpayers.

But then politicians began another round of tinkering with the tax code, adding reams of new pages to an already incomprehensible set of rules that even the guy overseeing the IRS can't seem to figure out.

Democrats wanted to lower taxes on the least affluent, while Republicans wanted to lower taxes on everyone. The result was bipartisan enthusiasm for tax credits aimed at everything from children (1997) and college students (1997) to hybrid cars (2005) and homebuyers (2009). Many of these credits dole out cash to people even if they report no income, making them mere government handouts.

"There's no difference at all in terms of the effects on the federal deficit," says Williams of the Tax Policy Center. "It's perfectly equivalent. It's just easier to say, 'I cut your taxes' as opposed to 'I created a new federal program to send money to people.'"

I'm talking here about federal income taxes, not other taxes like Social Security, Medicare, state income taxes, sales taxes, or car registration taxes, some of which are extracted through payroll deductions. The owe-no-money crowd tends to get hit by at least some of those.

The perils of today's situation should be obvious. The United States is close to a tipping point - where most people can skip the post office run on April 15 to mail a check because they're expecting one from the government instead.

"It is somewhat odd that you have a decreasing number of folks paying into the federal income tax system, a decreasing number of folks who have a stake in what the government pays for," says Matt Moon of the non-partisan Tax Foundation in Washington, D.C.

It then becomes tempting to vote for politicians promising more and more handouts, paid for by money forcibly extracted from an ever-shrinking number of their neighbors. In addition to being immoral, it's poor public policy: people who pay no taxes but nevertheless get benefits are less likely to be careful overseers of their elected representatives.

"At some point people become less and less invested in making sure their government is accountable and frugal," says Peter Sepp, vice president for policy and communications at the National Taxpayers Union, a lower-tax advocacy group. "If you pay very little for getting all kinds of government benefits, you might view those programs as a bargain, even though they may waste tens of billions of dollars a year."

As a candidate, President Obama promised still more tax credits, including ones aimed at child care, "clean cars," and savings accounts. As the Wall Street Journal explained at the time: "You can receive these checks even if you have no income-tax liability. In other words, they are an income transfer - a federal check - from taxpayers to nontaxpayers. Once upon a time we called this 'welfare,' or in George McGovern's 1972 campaign a 'Demogrant.'"

A recession, the stimulus, and innumerable bailouts have placed Mr. Obama's plans on hold. But the expiration of the Bush tax cuts at midnight on December 31, 2010 will renew interest in a tax law rewrite.

That will be an opportunity to gut the current system and replace it with something simpler and fairer. After all, if government is important enough to force most of us to work until April 13 to pay its bills, why shouldn't everyone share the pain?

Declan McCullagh is the chief political correspondent for CNET and a CBS News EconWatch contributor. Previously, he was Wired's Washington bureau chief and a reporter for Time.com and Time magazine in Washington, D.C. He has taught journalism, public policy, and First Amendment law. He is an occasional programmer, avid analog and digital photographer, and lives with his wife in the San Francisco Bay area.

By Delcan McCullagh

© MMIX, CBS Interactive Inc. All Rights Reserved.

in this country, anyone can do and be anything thing they choose. If making 40,000 isn't enough for you, go back to school, take on an extra job, sell on Ebay to supplement, start a home business on the side, take just 1 extra class a semester if thats all you can afford, take out a school loan, and the ideas can go on and on. That's the great thing about America. Noone is telling you that you can't better your situation. Free enterprise is a wonderful thing. That's what allowed those who are making 250,000. the ability to do so. But, just because they make more, just because they bettered themselves with their own initiative, worked harder, sacrificed and went to school, doesn't mean they should pay more than anyone else to live here. Their 'extra' income is just that. Theirs. To do with as they feel fit. Most (not all) people who make more than they need to live on usually give alot of it away to charity causes of their choice. (their choice, being the key words here) Let the people decide what to do with their 'extra' funds, not the government.

I feel that if the gov. would cut out all of the trillions in spending on crap, we wouldn't have the need to worry about where this money is going to come from. Any household knows not to spend more than you bring in is the answer. Why can't the gov. see that? Debt is bad. Some feel good about saying, "What are you complaining about, 95% of you won't even get a tax increase," but they don't understand that everything from electricity to gasoline and oil and food, etc. wiil rise instead, and there's your 'tax' being passed on to you from all other businesses. This money to repay these stimulus plans have to come from somewhere.

in this country, anyone can do and be anything thing they choose. If making 40,000 isn't enough for you, go back to school, take on an extra job, sell on Ebay to supplement, start a home business on the side, take just 1 extra class a semester if thats all you can afford, take out a school loan, and the ideas can go on and on. That's the great thing about America. Noone is telling you that you can't better your situation. Free enterprise is a wonderful thing. That's what allowed those who are making 250,000. the ability to do so. But, just because they make more, just because they bettered themselves with their own initiative, worked harder, sacrificed and went to school, doesn't mean they should pay more than anyone else to live here. Their 'extra' income is just that. Theirs. To do with as they feel fit.

Yep! And if you gave employers some tax relief, then maybe...just maybe...the minimum wage would see some improvement!

in this country, anyone can do and be anything thing they choose. If making 40,000 isn't enough for you, go back to school, take on an extra job, sell on Ebay to supplement, start a home business on the side, take just 1 extra class a semester if thats all you can afford, take out a school loan, and the ideas can go on and on. That's the great thing about America. Noone is telling you that you can't better your situation. Free enterprise is a wonderful thing. That's what allowed those who are making 250,000. the ability to do so. But, just because they make more, just because they bettered themselves with their own initiative, worked harder, sacrificed and went to school, doesn't mean they should pay more than anyone else to live here. Their 'extra' income is just that. Theirs. To do with as they feel fit. Most (not all) people who make more than they need to live on usually give alot of it away to charity causes of their choice. (their choice, being the key words here) Let the people decide what to do with their 'extra' funds, not the government.

I feel that if the gov. would cut out all of the trillions in spending on crap, we wouldn't have the need to worry about where this money is going to come from. Any household knows not to spend more than you bring in is the answer. Why can't the gov. see that? Debt is bad. Some feel good about saying, "What are you complaining about, 95% of you won't even get a tax increase," but they don't understand that everything from electricity to gasoline and oil and food, etc. wiil rise instead, and there's your 'tax' being passed on to you from all other businesses. This money to repay these stimulus plans have to come from somewhere.

Although I agree with you in point, I have to disagree that everyone in this country can do what you say to go on and earn 100k or more a year. Not everybody can have the jobs that pay big bucks, there just isn't enough of them. Yeah I can go to school and become, say a lawyer, but have you looked at what it takes to be a high paying lawyer? It's not a job everybody can do, along with being a Dr., CEO, and so on. The majority of jobs are middle to lower income jobs.

It's easy to say "Go back to school, sell on Ebay, etc." Reality just doesn't work that way. There is a reason there are more workers than bosses in any job.

I do like the suggestion of a federal state tax and no income tax. Taxed on what you spend sounds perfect. I can then choose not to spend as much, or make better spending judgements.

The problem that I've seen in MANY cases is people simply living outside their means. It's one of the biggest problems this nation has -- the "need" to have more than one can afford.

I agree with Plain: If a family can't live on what is being made, move to an area that is more affordable.

I do like the suggestion of a federal state tax and no income tax. Taxed on what you spend sounds perfect. I can then choose not to spend as much, or make better spending judgements.

Exactly.

However, if people don't "spend enough," you know Uncle Sham will find ways to get more money out of us.

Where've you been for the past 8+ years? Employers and corporations got some tax relief, in fact more than lower wage earners. Your theories on less tax for corporations and employers as being beneficial to their employees, have been disproven. It just hasn't worked that way, unfortunately. Greedy people at the top have kept that from happening and now this country is in one hellofa mess. What's happened to your short term memory?

And yeah, lots of very wealthy folks love to donate - they benefit from it by using it for tax write offs. Yay them. If they donate anonymously and don't take tax deductions for it, THEN I'm impressed. Or if they do hands-on charity work, that's impressive.

I would put forth that the area that person is living in is simply "too wealthy" for their income. That's why I don't live in a super swanky area of Dallas (ok....that's actually not the reason, but you get my point?)

But if everyone who can't make 100k a year moved away from an area, who would serve us our coffee at Starbucks?

BJean, are you a welfare recipient or simply a class bigot?

But if everyone who can't make 100k a year moved away from an area, who would serve us our coffee at Starbucks?

A good example of capitalism! If Starbucks needs more workers, they raise wages (so maybe the workers don't have to leave the area)......they will also probably raise prices to offset the profit losses from the wages....when the prices get too high, consumers will balk from spending money there......new company with sleeker business model takes over to serve coffee-based beverages....repeat as necessary.

There's no Christmas parade without Santa Claus.

Hehehe, I like this!

A good example of capitalism! If Starbucks needs more workers, they raise wages (so maybe the workers don't have to leave the area)......they will also probably raise prices to offset the profit losses from the wages....when the prices get too high, consumers will balk from spending money there......new company with sleeker business model takes over to serve coffee-based beverages....repeat as necessary.

No, what happens is that everything gets so expensive that people making 6 figures can't live in the area either. Or everyone moves to a "cheap" place to live and then that place suddenly isn't so cheap any more and it's certain less attractive in other ways (traffic and pollution increases, harder to get your kid into a good school, etc.)

The local economy is an ecosystem. It needs all it's parts to function. This includes unskilled labor. It is not in our best interests to tax unskilled labor to the point they can't function on their salaries because that only increases the welfare rolls. There is something kind of sick about a system where your quality of life is better on welfare than working. In order to guard against that, we need minimum wage laws, and lower/no taxes for the lowest paid workers.

There is something kind of sick about a system where your quality of life is better on welfare than working.

I absolutely agree with you on this!

There is something kind of sick about a system where your quality of life is better on welfare than working. In order to guard against that, we need minimum wage laws, and lower/no taxes for the lowest paid workers.

I agree too! I actually have no problem against very low / no taxes for the poorest among us, as long as they're working (when applicable).

And see there, plain has a great sense of humor too!

And see there, plain has a great sense of humor too! :thumbup:

It's true! I'm a shining star!!