It’s not that unusual.
Former President Donald Trump and his wife, Melania, paid $0 in income taxes for 2020, according to a report released late Tuesday by the congressional Joint Committee on Taxation.
That year, as the COVID pandemic hit, the Trumps reported a loss of $4.8 million. For 2018 and 2019, the then-president’s reported income increased and they paid approximately $1.1 million in federal taxes each year.
This year, some 72.5 million U.S. households, or 40%, will pay no federal income tax, down from the pandemic high of 100 million households, or 60%, two years ago, according to estimates from the Tax Policy Center. In 2021, nearly 56% of households, or 99 million, paid no federal income tax, the nonpartisan think tank said in a report released earlier this year.
But the reason that the Trumps paid nothing in taxes — that is, their reported loss of almost $5 million — is vastly different from the reason that most of that other 60% of Americans paid nothing in 2020.
People who earn less than the standard deduction — which for 2022 is $12,950 for individuals and $25,900 for married couples filing jointly — do not owe federal income taxes (although tax experts say it is still a good idea to file a return in order to access tax credits such as the earned-income tax credit and the child tax credit).
Of course, people who don’t pay federal income taxes still pay sales taxes, property taxes and other kinds of taxes. And many people who work and who don’t owe any federal income taxes still have money taken out of their paychecks for Social Security and Medicare.
In fact, many low-income and below-average-income families pay more in payroll taxes every year than they pay in federal income taxes, according to Gary Burtless, a senior fellow at the Brookings Institution, a centrist research group founded in 1916.
“‘Nearly all of U.S. residents who owe no income taxes or very low taxes have relatively little current taxable income. Many of these people are retired, and have modest current taxable income.’”
For the most part, Burtless said, the U.S. individual income tax is progressive, with heavier tax liabilities as you move up the income-distribution scale, and very low or negative income-tax liabilities at the bottom of the scale.
“The logic of our income tax system, is that Americans’ income tax obligation should fall most heavily on those with the greatest ability to pay,” he told MarketWatch. “Nearly all of U.S. residents who owe no income taxes or very low taxes have relatively little current taxable income. Many of these people are retired, and have modest current taxable income.”
“Recall, however, that many of them paid positive income taxes earlier in their careers when they did have wages, self-employment earnings or other taxable income,” Burtless added. “Other non-taxpayers are young and have very modest taxable incomes (though many of these people owe payroll taxes for Medicare and Social Security).”
“And still other non-payers are simply very poor and/or have many dependents,” he added. “Under the logic of our income tax system, we expect and regard it as fair that these low-current-income people owe no federal income taxes.”
In his own analysis, Don Fullerton, a professor of finance at the University of Illinois at Urbana-Champaign, also found that older individuals are much more likely than younger individuals to pay no tax or to receive tax transfers.
Older people receive the bulk of tax transfers through of Social Security benefits, while younger people are more likely to receive transfers such as unemployment-insurance benefits.
“The federal income tax always has excluded a significant fraction of households through a combination of personal exemptions, the standard deduction, zero-bracket amounts, and more recently, tax credits,” the Tax Policy Center said.
Source: finance.yahoo.com