Feature Story

July 2, 2009

Who Pays No Income Tax?

From Urban Institute:

Nearly half of all tax units will pay no income tax in 2009. The fraction of non-taxpayers differs widely, depending on income, tax filing status, and whether the unit is elderly or contains children.

During the 2008 election campaign, President Obama proposed to create or expand a variety of refundable tax credits, most notably his Making Work Pay credit. Refundability was key for Obama - that's the only way to make credits available to people who pay little or no tax. Critics decried the proposals, asking how you can cut taxes for people who pay no tax. The Tax Policy Center (TPC) estimated that, under then current law, 38 percent of all nondependent tax units would pay no income tax in 2009.

Earlier this year, Obama signed into law the American Recovery and Reinvestment Tax Act of 2009 (P.L. 111-5), which, among other things, temporarily put into place some of the refundable credits proposed during the campaign. TPC estimates that under the new law, 47 percent of tax units will owe no income tax in 2009.

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