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Did you pay income tax in 2010?

We are happy to have Alan Moore, Financial Analyst with the Kahler Financial Group guest blog for us today.

According to a recent study, 45% of Americans didn’t pay any federal income tax last year. Many of those Americans carrying PAN and not paying any income tax actually received money from the government through refundable income tax credits.

I was shocked at the number of Americans not paying tax largely because I sent Uncle Sam a check for $1,463, even though my wife and I were students last year. According to the Bureau of Labor Statistics, the average household in 2009 (2010 numbers aren’t available yet) earned $43,460. In 2010, my wife and I were graduate students earning $1,000 each per month, plus some money for additional summer work, totaling $35,664. We made less than the average household, and yet did not qualify to be in the 45% group that didn’t pay federal income taxes.

It is important to note that it isn’t that the bottom half of wage earners didn’t pay tax, and the upper half did. The fact is people throughout the income brackets were able to avoid paying federal income tax.

This doesn’t make a lot of sense to me.  We were two struggling students putting ourselves through graduate school and we were not able to pay our rent without the use of 6.9% interest student loans.  Still, we paid more tax than at least 45% of Americans! If we had a child, we would have gotten a refund of not only the $1,463 we paid, but also several thousand for the child tax credit and the earned income tax credit.

This is just another interesting point in a long history of our countries baffling tax code.  Maybe one day Washington will decide to stop picking winners and losers based on campaign donations and votes, and instead get this country’s finances back on track.

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3 Responses to Did you pay income tax in 2010?

  1. Richard Colman April 29, 2011 at 11:28 am #

    You are making some really good points, but if you take a different perspective, you may feel differently, not that it won’t hurt but the rationale may take some of the sting out…

    Well, the interesting part to what you are saying is that the tax code is designed to have winners and losers. We as a nation made a decision that the more you earn the greater you pay and that homeowners, parents with small children and certain wage earners benefit more than others. We also help businesses and farmers as well as oil companies and businesses carrying on overseas. So you are looking at the tax code as if it is not manipulated and it is.

    Rich

  2. Chet Roberts April 29, 2011 at 12:10 pm #

    The tax code is the single most powerful “weapon” that politicians have. They will not give it up for a simplified or “fair” system no matter who is voted in. So what’s the solution? I haven’t a clue. The only thing that comes to mind is that famous quote by Thomas Jefferson…”A revolution now and then is a good thing..”

  3. Bobbie Munroe May 3, 2011 at 8:51 am #

    Two things:

    1. “average” and “mean” are two very different concepts. I wonder what the “mean” income level is? I suspect it is much lower.
    2. $35K? I know people who are trying to raise kids on half that amount(single moms with full time AND part time jobs at minimum wage). Beleive me, your income looks luxurious to them. And this is just temporary for you but much more permanent for them as they don’t have the time or resources to take advantage of opportunities. Frankly, I don’t see how anyone could expect this group to pay income taxes (they do pay payroll taxes). They can’t afford taxes or, alas, healthcare. Many of those who were middle class and have been under/unemployed for a long time are just getting some real knowledge about what living at this end of the spectrum looks like. We NEED people to collect the trash, check us out at the grocery counter, take care of kids in day care. Pay them a living wage and then we can start talking about having them pay income taxes.