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A great divide

If you think you paid more than your share of federal income tax this year, you just might be right-assuming you paid any at all.

If, on the other hand, you owed nothing to Uncle Sam for 2009, you are hardly alone. Nearly half of all American households now pay no federal income tax.

Projections by the non-partisan Tax Policy Center show that roughly 47 percent of Americans paid no federal income tax this spring. Indeed, the bottom four-tenths of wage earners on average get more money via tax credits than they would otherwise owe in taxes.

One need not be poor to avoid the federal income tax. The Tax Foundation, another non-partisan group, says a family of four earning more than $50,000 can owe nothing after taking the standard deduction and the child tax credit.

A few households with more than $1 million also escape federal income tax, but in general the wealthy carry much of the burden. According to the TPC, 99.7 percent of Americans earning more than $1 million paid federal tax this year equal to 27 percent of their earnings; the average taxpayer paid 18 percent.

It’s certainly true that most Americans pay taxes to the federal government-most significantly, the payroll taxes that fund Social Security and Medicare. And over the past few decades the wealthy have seen the biggest reduction in their tax rates.

Still, the fact that so many owe nothing in federal income tax raises some important questions: What is each individual’s fair share of the federal income tax burden? What impact does this division of taxpayers and non-payers have on our democracy?

"No taxation without representation" was a rallying cry among American colonists. What would they think of a system in which representation without taxation–at least when it comes to the single largest source of federal revenue-characterizes half the citizenry?

Tax breaks for low- and middle-income families have expanded under President Barack Obama, but the current rise in non-payers actually began in the Bush years. In truth, both political parties have had a hand in creating this divide.

Today, one day after April 15, is not too soon for them to begin to think about whether this system needs reform.

4/16/10 (c) 2010 Rochester Business Journal. To obtain permission to reprint this article, call 585-546-8303 or e-mail rbj@rbj.net.

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