61% of Americans paid no federal income taxes in 2020, Tax Policy Center says

CNBC:

  • More than 100 million U.S. households, or 61% of all taxpayers, paid no federal income taxes last year, according to a report from the Tax Policy Center.
  • The pandemic and federal stimulus led to a huge spike in the number of Americans who either owed no federal income tax or received tax credits from the government.
  • The main reasons for the spike — high unemployment, large stimulus checks and generous tax credit programs — will largely expire after 2022.

More than 100 million U.S. households, or 61% of all taxpayers, paid no federal income taxes last year, according to a new report.

The pandemic and federal stimulus led to a huge spike in the number of Americans who either owed no federal income tax or received tax credits from the government. According to the Urban-Brookings Tax Policy Center, 107 million households owed no income taxes in 2020, up from 76 million — or 44% of all taxpayers — in 2019.

“It’s a really big number,” said Howard Gleckman, senior fellow in the Tax Policy Center. “It’s also really transitory.”

Gleckman said the main reasons for the spike — high unemployment, large stimulus checks and generous tax credit programs — will largely expire after 2022, so the share of nontaxpayers will fall again starting next year.

The share of Americans who pay zero income taxes is expected to stay high, at around 57% this year, according to the Tax Policy Center. It’s expected to fall back down to 42% in 2022 and remain at around 41% or 42% through 2025, “assuming the economy continues to rebound and several temporary tax benefits expire as scheduled,” Gleckman said.

Despite being fleeting, the high number of nontaxpayers is sure to fuel the debate in Congress over higher taxes on the wealthy. Many Democrats say the wealthy don’t pay their fair share, and cite a series of recent articles in ProPublica showing that billionaires including Jeff Bezos and Carl Icahn paid no federal income taxes in certain years. The $3.5 trillion reconciliation bill in Congress is expected to include increases in capital gains taxes, a higher top rate on ordinary income, a higher corporate tax rate and other measures aimed at those making $400,000 or more.

Some Republicans argue that the tax structure is already progressive and relies heavily on revenue from a small group of high earners and companies at the top, while many Americans pay little or no taxes. The share of Americans who pay no federal income taxes has been hovering around 44% for most of the last decade, according to the Tax Policy Center.

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