The Myth of the Poor Paying No Federal Taxes

The tax-paying record of both large corporations and small businesses follows an analogous pattern — in some years no taxes are paid, while in other years substantial taxes are paid. During the years when they have net operating losses, companies that are subject to the corporate income tax generally have no tax liability.

A GAO study found that in every year from 1998 to 2005, approximately 55 percent of large corporations paid no corporate income tax. ** But just 2.7 percent of large corporations reported no net tax liability in all eight of those eight years. This reflects a similar pattern as applies to families and individuals — those who do not pay income tax in a given year often do pay income tax over time.

This pattern also applies to small business owners and others who deduct business losses from their taxable incomes and thereby eliminate their income tax liability in some years.

The right seems to think that the only people who pay too much in taxes are the wealthy and the only people who don’t pay enough are the poor. That’s clearly backwards.

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10 comments on this post.
  1. fastlane:

    Bookmarking this study for reference. Thanks Ed.

    It confirms some of the haphazard searching I’ve been doing, and some basic calculations I’ve used as hypotheticals come pretty close to these actual numbers.

  2. Area Man:

    The right seems to think that the only people who pay too much in taxes are the wealthy and the only people who don’t pay enough are the poor.

    Which makes it rather hard to believe that they have a principled objection to taxation. It really is just class warfare.

  3. Occam's Blunt Instrument:

    When big companies like Exxon Mobil, Chevron, Boeing, and Yahoo! pay NO taxes at all, it’s kind of obscene to think about squeezing 20% from the bottom tier of wage-earners.

  4. bahrfeldt:

    Most of us pay 6.2% of our gross wages (temporarily at a reduced rate) for Social Security. Our employer does as well but can take an income tax deduction for its share. A-Rod is paying less than 0.04% of his salary in payroll taxes (assuming the reported salary is correct and is paid as an employee’s salary), them Yankees at a similar rate. If he could treat that as long term capital gains, like some hedge fund managers, or dividends or interest or rents or even other capital gains, that percentage would drop to zero. The pols treat payroll taxes as taxes for “balancing” the budget but not when it comes to who pays them. Can they spell hypocrite?

  5. marymallone:

    The regressive tax system makes no sense whatsoever. I keep trying to think of ways to articulate how fucked up that is, and why, but I can’t. Is it some sort of “trickle-down” thing? That just does not make sense.

  6. azkyroth:

    Is it some sort of “trickle-down” thing?

    It’s more of a “nuke the poor” sort of thing.

  7. Michael Heath:

    Another regressive tax on the poor is that business taxes are incorporated into the price paid for goods and services. From a practical perspective, businesses as a collective group don’t pay taxes, they pass them on to consumers.

    The poorer one is, the less discretionary income they have to pay the taxes embedded in the goods and services paid for and consumed, taxes which are not regressive but instead flat and therefore regressive from the marginal amount of income available to pay such taxes. The richer one is, the more marginal income they have to invest after paying taxes embedded in the goods and services consumed.

  8. doktorzoom:

    It’s more of a “nuke the poor” sort of thing.

    It’s also a “the poor have no lobbyists” thing

  9. jonhendry:

    I’d like to see the numbers for the Clinton years, when unemployment was low and labor participation rate was higher.

  10. jesse:

    It seems to me there are a couple of ways to solve a ton of problems with both Social Security and local tax revenues.

    1. No more payroll tax limit. Tough titties if you make $3 million a year and have to pay $180K a year in payroll tax. You get a check, you pay. Social Security would be essentially solvent forever.

    2. Income is income. You make money, you pay. It should not matter where the money is from. I have no problem with various deductions — there are all sorts of ways to massage that, depending on what you want to encourage people to do. But Little Jenna Bush could live entirely off an inheritance and gather interest, and make far more than I do without working a day in her life, and pay less in taxes. If I worked and made $100 K per year in salary I would pay more than a rich kid living off daddy’s dime. That is beyond un-freaking fair as not all of us were born with rich daddies.

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