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FORUMS General Discussions Politics The Fiscal Costs of Nonpayers
TOPIC: The Fiscal Costs of Nonpayers
Created by: Seduction4Two
Original Starting post for this thread:
There has been growing concern recently about the rapid increase in the number of “nonpayers”—those Americans who have no income tax liability because of the numerous credits and deductions in the code. As of 2010, 41 percent of tax filers—some 58 million in all—had no income tax liability after taking their credits and deductions. There are currently more Americans off the tax rolls than at any time since 1940, when the income tax became a “mass tax.”

Aside from the revenue impact of not having 58 million Americans pay income taxes, economists worry about the social and political effects of having so many people disconnected from the cost of government—a phenomenon known as fiscal illusion.[1] The concern is that when people perceive the cost of government to be cheaper than it really is, they will demand ever more government benefits because they either don’t feel the cost directly or believe that others will be paying those costs. Indeed, when one takes into account those who do not file, about half of all households pay no federal income tax, making the situation particularly worrisome in a majority-rule democracy.[2]

Despite these extensive concerns, there has been surprisingly little investigation of any possible linkage between the growth of nonpayers and the growth of government spending or government benefits. After tracking this trend for more than a decade, Tax Foundation economists set out to explore the fiscal consequences of the growing number of Americans being taken off the income tax rolls.

A review of the data suggests these concerns are not unfounded. Our analysis finds that in the post-WWII era, there is a very strong connection between nonpayers and federal government transfer payments. Transfer payments are programs that give direct assistance to people such as unemployment insurance, Social Security, Medicare, Medicaid, and food stamps.

In fact, our model suggests that a 1 percentage point increase in the share of tax filers who are nonpayers (from 40 percent to 41 percent, for example) is associated with a $10.6 billion per year increase in transfer payments. Since the number of nonpayers has increased by 20 percentage points over the last two decades, our model indicates that in 2010 alone, over $213 billion in transfer payments are associated with this two decade increase in nonpayers.

Further, analysis suggests that the increase in nonpayers may also be affecting other aspects of public finances such as the national debt. This is not surprising given that the growth of transfer payments has been a key driver of the growth of the national debt.

We find that for every 1 percentage point increase in the share of tax filers who are nonpayers, the debt as a percentage of GDP increases by 0.704 percentage points. For example, if the percentage of nonpayers increased from 40 percent to 41 percent, we would expect the debt held by the public to increase from, say, 70 percent of GDP to 70.704 percent of GDP. This means that the 20 percentage point increase in the share of nonpayers over the last 20 years has increased the debt ratio by 14 percentage points.

This research suggests that we are now seeing the fiscal cost of dropping millions of Americans from the income tax rolls in the form of record levels of federal transfer spending and national debt. As lawmakers consider proposals for tax and entitlement reform, they should take into account the fiscal impact of exempting a majority of Americans from the largest source of federal tax revenue.

For the rest of this information go to:

/taxfoundation.o rg/article/fiscal-costs-nonpayers

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Never argue with an idiot.

They will bring you down to their level and then beat you with experience...

Samuel Clemens

Fullerton CA
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quite an argumentative chap.

Philadelphia PA
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You really aren't very good at this are you?

East Fishkill NY
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FOCUS fj. You were talking about the FEDERAL CORPORATE TAX RATE.

Nice deflecting though....

fail

East Fishkill NY
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The business world is becoming increasingly global. In 2007, international commerce accounted for 35 percent of worldwide Gross Domestic Product. But America is failing to keep pace. Today, U.S. investment in foreign firms is three times greater than in American companies, and in 2010, only six of the 20 largest global companies were U.S. based, down from 13 in 1985.

Switching to a territorial tax system offers the United States a practical way to bolster international trade, increase tax revenues, and re-establish itself as a leader of global innovation and commerce. Many U.S. leaders espouse this view and a growing number recognize its practicality. For the sake of our domestically based businesses and workers, it's important we carefully reconsider our current tax policy.

Sanford NC
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American companies that operate internationally directly sustain over 22 million U.S. jobs and a further 41 million indirectly. Additionally, the average U.S. company operating globally buys $3 billion in goods and services from small businesses here at home, with a cumulative impact of more than $1.52 trillion. Unreasonable tax policies put all of that at an unnecessary risk.

Moreover, monitoring the tax activity of U.S. based multinationals under the current system creates sizeable costs. Both government agencies and private firms devote valuable time and resources to tracking and taxing foreign income. According to the Tax Foundation, the IRS estimates American companies and individuals spend 7 billion hours a year filing tax forms. Under a simplified "territorial" system, governments would see gains that would offset most, if not all, short-term reductions to tax revenue. Moreover, the long-term gains caused by increased economic activity and decreased compliance costs would dwarf any immediate losses.

Taxing U.S. companies on profits earned abroad also discourages managers from repatriating profits, thereby reducing domestic investment. Similarly, hefty taxes deter foreign investment in the United States since prospective financers recognize the drag they will create on revenues.

Sanford NC
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Operating under a higher tax rate automatically puts U.S. based firms at a competitive disadvantage to their foreign counterparts. Developments in technology and greater global integration have opened international boundaries. Companies today have fewer deterrents from relocating their operations to areas that provide the most economically conducive environment, putting an inestimable pressure on nations to create commerce-friendly conditions. We've already seen this at a state by state level.

California, which boasts one of the most burdensome state tax systems, has witnessed companies relocate at an accelerating pace. In 2011, companies moved out of California at an average of about five a week. Altron Inc., an information technology company laid off 74 employs to open headquarters in South Carolina. CGI Federal Inc. fired 170 people to move to Canada. Petco, the well-known supplies retailer, shut down its headquarters in San Diego to move to Texas. The list goes on and on.

Sanford NC
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usnews.c om/opinion/blogs/economic-intelligence/2012/04/02/worlds-highest-corporate-tax-rate-hurts-us-economically

World's Highest Corporate Tax Rate Hurts U.S. Economically By Joseph Mason

Joseph Mason is the Moyse/LBA Chair of Banking at the Ourso School of Business at Louisiana State University and a senior fellow at the Wharton School of the University of Pennsylvania.

United States-based companies and hardworking Americans face a steadily growing problem, one oddly self-imposed by Uncle Sam. Our current tax system puts businesses and workers at a competitive disadvantage in the global market and discourages companies from investing in operations here at home.

On Sunday, April 1, Japan lowered its corporate tax rate, leaving the United States with the highest effective rate among developed countries: 39.2 percent.

Under the "worldwide" tax system the United States employs now, companies' profits generated abroad are subject to taxes both domestically and in the country they were earned. Certain provisions are built into the tax code to alleviate that burden, but even those protections are being challenged by members in Congress who seem ensconced on repealing these important incentives for U.S. industry. According to a 2011 Business Roundtable report:

"American companies can face a tax rate on their remitted foreign earnings a full 16 percentage points higher than the rate faced by their foreign competitors."

Sanford NC
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"Our EFFECTIVE tax rate is one of the lowest in the world."

Let me rephrase this so fj does not dig up the tax policies of Kenya...

Our EFFECTIVE tax rate is one of the lowest in the developed world.

East Fishkill NY
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FJ,

I have no clue whom you're responding to, but I've learned a long time ago, that on the internet, you can be anything that you want, particularly if no one ever met you. You can paint a whole fantasy, starting with small things like having a husband or a wife, being a certain profession, living a certain way or in certain areas, knowing influential people, claiming that you're a big shot, you get the drift. You read this stuff smile and remember about that grain of salt ;).

Rumson NJ
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TOPIC: The Fiscal Costs of Nonpayers