Refundable Tax Credits Give the Bottom Two Quintiles Negative Effective Tax Rates

November 13, 2013

About half of all nonpayers receive refundable tax credits even though they have no income tax liability. This means that, in addition to recouping every dollar withheld from their paycheck during the year, they also receive a subsidy check from the IRS. The Congressional Budget Office now estimates that, because of the large amount of refundable tax credits, the bottom 40 percent of households now have negative effective tax rates. Remarkably, the effective tax rate for middle-income households is nearing zero because of the recent expansion of tax credits. The net effect of these trends is that virtually the entire income tax burden is now being borne by the two highest groups of taxpayers.

For more charts like the one below, see the second edition of our chart book, Putting a Face on America's Tax Returns.


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