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Some Nonpayers Do Pay Income Tax

By: Nick Kasprak

I wanted to follow up on my previous post about different ways to define a "nonpayer" with some data from the IRS. Yesterday I talked about three possible definitions of a nonpayer of federal income taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. : 1) someone whose federal income tax liability is zero or negative (the standard definition and the one Mitt Romney meant), 2) someone whose effective marginal tax rateThe marginal tax rate is the amount of additional tax paid for every additional dollar earned as income. The average tax rate is the total tax paid divided by total income earned. A 10 percent marginal tax rate means that 10 cents of every next dollar earned would be taken as tax. is zero or negative, or 3) someone who has no taxable incomeTaxable income is the amount of income subject to tax, after deductions and exemptions. For both individuals and corporations, taxable income differs from—and is less than—gross income. . The IRS has readily accessible data for definitions 1 and 3 (though 2 requires much more work), so I've made a chart showing the percentage of filers whose income tax liability is zero or negative (the broader definition) and the percentage of filers whose taxable income is zero (a smaller, but still significant, group of people).

There are plenty of filers who have no income tax liability but do have taxable income (16% in 2009) – it's just that the credits they get back equal or exceed the tax they owe. However, these people still have an interest in keeping tax rates low, because their bottom line tax liability, while negative, is nevertheless still affected by statutory tax rates.