Misconceptions and Realities About Who Pays Taxes — Center on Budget and Policy Priorities

Most of the people who pay neither federal income tax nor payroll taxes are low-income people who are elderly, unable to work due to a serious disability, or students, most of whom subsequently become taxpayers.  (In years like the last few, this group also includes a significant number of people who have been unemployed the entire year and cannot find work.)

Moreover, low-income households as a group do, in fact, pay federal taxes.  Congressional Budget Office data show that the poorest fifth of households paid an average of 4.0 percent of their incomes in federal taxes in 2007, the latest year for which these data are available — not an insignificant amount given how modest these households’ incomes are; the poorest fifth of households had average income of $18,400 in 2007.[6]   The next-to-the bottom fifth — those with incomes between $20,500 and $34,300 in 2007 — paid an average of 10.6 percent of their incomes in federal taxes. 

Moreover, even these figures greatly understatelow-income households’ totaltax burden because these households also pay substantial state and local taxes.  Data from the Institute on Taxation and Economic Policy show that the poorest fifth of households paid a stunning 12.3 percent of their incomes in state and local taxes in 2011.[7]

When all federal, state, and local taxes are taken into account, the bottom fifth of households pays about 16 percent of their incomes in taxes, on average.  The second-poorest fifth pays about 21 percent

Misconceptions and Realities About Who Pays Taxes — Center on Budget and Policy Priorities