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Held Harmless by Higher Income Tax Rates?

Rachel M. Johnson, Eric Toder

Published: March 04, 2010
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Reprinted with permission of Tax Analysts.

The text below is an excerpt from the complete document. Read the full report in PDF format.


Abstract

In 2010, 45 percent of tax returns will either remit no federal income tax or receive a net tax refund. But this figure overstates the share of taxpayers who would be unaffected by higher income tax rates. Raising all rates by 1 percent would hold only 34 percent of tax returns harmless; others would either pay higher taxes or receive smaller net rebates.


Introduction

The proliferation of tax credits has raised the number of Americans who either remit no federal income tax or receive a net income tax refund. The most requested publication on the Tax Policy CenterWeb site reports that nearly half (47 percent) of all tax units face zero or negative tax liability for tax year 2009. The updated figure for tax year 2010, assuming the alternative minimum tax patch is extended, is 45 percent - primarily because some temporary tax provisions in the stimulus bill have expired. People pay no income tax for one of two reasons: either they have no taxable income (almost all the elderly with no tax liability) or they can claim enough credits to offset the taxes they would otherwise owe.

(End of excerpt. The entire report is available in PDF format.)