Taxes

Here's who won't be paying federal income taxes this year

Aug. 15, 2011 at 8:43 PM ET

Billionaire investor Warren Buffett caused quite a stir Monday when he called on Congress to start charging him and his super-rich friends more taxes.

On the other side of the spectrum are the nearly half of all American households — many of whom are poor and/or elderly — who aren't expected to have any federal income tax bill this year.

A new report from the Tax Policy Center estimates that 46 percent of American households will pay no federal income tax this year.

About half of those folks are basically exempt from federal income taxes because they are low-income and also may have large families, according to the Tax Policy Center, a project of the Urban Institute and Brookings Institution.

The other half are exempted because of other provisions in the tax code, including seniors who live off Social Security or people who were able to zero out their federal income tax liability with itemized deductions such as charitable donations, or tax code features such as the child tax credit.

Still, almost no one gets off completely tax free.

Roberton Williams, senior fellow with the Tax Policy Center, said more than half of those who pay no federal income tax are still on the hook for payroll taxes, which are used mainly to fund Social Security and Medicare.

In addition, most people end up paying sales taxes as well as federal excise taxes on gasoline, alcohol and other products.

"Almost everyone is going to pay a tax somewhere along the way," he said.

Williams said that the percentage of people who will pay no income taxes this year actually is expected to be slightly lower than in the past two years, when tax credits designed to stimulate the economy allowed even more people to zero out their federal income tax bill.

If the economy gets better, he expects a higher percentage of American households to pay federal income tax.

If Buffett gets his way, another change in the next few years will be that the rich pay more taxes.

The chairman of investment firm Berkshire Hathaway argued in The New York Times Monday that Congress needs to do more than just cut money from the federal budget; it also needs to add more to government coffers by raising taxes on the rich.

Buffett noted that his federal tax bill, including payroll taxes, came out to just 17.4 percent of his taxable income last year, a lower percentage than anyone else in his office.

Even at that low rate, however, his annual tax bill alone equalled more wealth than many Americans will see in a lifetime: $6,938,744.

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