Fiscal Fact No. 202
During 2007, 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. Foundation economists estimate that roughly 46.6 million tax returns faced a zero or negative tax liability. These are the so-called nonpayers, people whose exemptions, deductions and credits wiped out any tax that would have been due. As a result, every dollar that was withheld from their paychecks during the year was refunded. In about half the cases, substantial additional money was “refunded” to the tax filer, although that portion is classified as a government expenditure since it is actually welfare spending, not a tax refundA tax refund is a reimbursement to taxpayers who have overpaid their taxes, often due to having employers withhold too much from paychecks. The U.S. Treasury estimates that nearly three-fourths of taxpayers are over-withheld, resulting in a tax refund for millions. Overpaying taxes can be viewed as an interest-free loan to the government. On the other hand, approximately one-fifth of taxpayers underwithhold; this can occur if a person works multiple jobs and does not appropriately adjust their W-4 to account for additional income, or if spousal income is not appropriately accounted for on W-4s. .
Almost a third of all tax returns, 32.6 percent of 143 million federal tax returns filed, were nonpaying in 2007, the most recent year for which IRS data is final. The percentage for 2007 is the second highest, a slight tick down from the all-time highest in 2006, when 33.0 percent of tax filers paid nothing.
The percentage of tax returns with no liability was fairly low in the 1960s and again in the early 1980s. A record had been set every year since 2002, as tax cuts throughout the Bush years, especially the refundable child tax creditA tax credit is a provision that reduces a taxpayer’s final tax bill, dollar-for-dollar. A tax credit differs from deductions and exemptions, which reduce taxable income, rather than the taxpayer’s tax bill directly. , pushed low-to-middle income people off the tax rolls.
| Federal Individual Income Tax Returns with Zero of Negative Tax Liability | |||
| Year | Number of Returns Filed | Returns with Zero or Negative Tax Liability | Percentage of Returns with Zero or Negative Tax Liability |
| 1950 | 53,060,098 | 14,873,416 | 28.0% |
| 1951 | 55,447,009 | 12,798,399 | 23.1% |
| 1952 | 56,528,817 | 12,652,544 | 22.4% |
| 1953 | 57,838,184 | 12,615,033 | 21.8% |
| 1954 | 56,747,008 | 14,113,948 | 24.9% |
| 1955 | 58,250,188 | 13,561,123 | 23.3% |
| 1956 | 59,197,004 | 12,938,358 | 21.9% |
| 1957 | 59,825,121 | 12,959,806 | 21.7% |
| 1958 | 59,085,182 | 13,433,048 | 22.7% |
| 1959 | 60,271,297 | 12,774,384 | 21.2% |
| 1960 | 61,027,931 | 12,966,946 | 21.2% |
| 1961 | 61,499,420 | 12,916,655 | 21.0% |
| 1962 | 62,712,386 | 12,620,023 | 20.1% |
| 1963 | 63,943,236 | 12,620,015 | 19.7% |
| 1964 | 65,375,601 | 14,069,263 | 21.5% |
| 1965 | 67,596,300 | 13,895,506 | 20.6% |
| 1966 | 70,160,425 | 13,451,349 | 19.2% |
| 1967 | 71,651,909 | 12,978,971 | 18.1% |
| 1968 | 73,728,708 | 12,440,000 | 16.9% |
| 1969 | 75,834,388 | 12,112,994 | 16.0% |
| 1970 | 74,279,831 | 14,962,460 | 20.1% |
| 1971 | 74,576,407 | 14,660,035 | 19.7% |
| 1972 | 77,572,720 | 16,703,713 | 21.5% |
| 1973 | 80,692,587 | 16,425,425 | 20.4% |
| 1974 | 83,340,190 | 16,005,423 | 19.2% |
| 1975 | 82,229,332 | 20,738,595 | 25.2% |
| 1976 | 84,670,389 | 20,249,022 | 23.9% |
| 1977 | 86,634,640 | 22,253,502 | 25.7% |
| 1978 | 89,771,551 | 21,083,246 | 23.5% |
| 1979 | 92,964,302 | 20,999,319 | 22.6% |
| 1980 | 93,902,469 | 19,996,225 | 21.3% |
| 1981 | 95,396,123 | 18,671,399 | 19.6% |
| 1982 | 95,337,432 | 18,302,132 | 19.2% |
| 1983 | 96,321,310 | 18,304,987 | 19.0% |
| 1984 | 99,438,708 | 17,799,199 | 17.9% |
| 1985 | 101,660,287 | 18,813,867 | 18.5% |
| 1986 | 103,045,170 | 19,077,757 | 18.5% |
| 1987 | 106,996,270 | 20,272,474 | 18.9% |
| 1988 | 109,708,280 | 22,572,948 | 20.6% |
| 1989 | 112,135,673 | 22,957,318 | 20.5% |
| 1990 | 113,717,138 | 23,854,704 | 21.0% |
| 1991 | 114,730,123 | 25,996,536 | 22.7% |
| 1992 | 113,604,503 | 26,872,557 | 23.7% |
| 1993 | 114,601,819 | 28,166,452 | 24.6% |
| 1994 | 115,943,131 | 28,323,685 | 24.4% |
| 1995 | 118,218,327 | 28,965,338 | 24.5% |
| 1996 | 120,351,208 | 29,421,858 | 24.4% |
| 1997 | 122,421,991 | 28,950,791 | 23.6% |
| 1998 | 124,770,662 | 31,722,764 | 25.4% |
| 1999 | 127,075,145 | 32,529,065 | 25.6% |
| 2000 | 129,373,500 | 32,555,897 | 25.2% |
| 2001 | 130,255,237 | 35,491,707 | 27.2% |
| 2002 | 130,076,443 | 39,112,547 | 30.1% |
| 2003 | 130,423,626 | 41,501,722 | 31.8% |
| 2004 | 132,226,042 | 43,124,108 | 32.6% |
| 2005 | 134,372,678 | 43,802,114 | 32.6% |
| 2006 | 138,394,754 | 45,681,047 | 33.0% |
| 2007 | 143,030,461 | 46,655,760 | 32.6% |
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