Government Dependency

Rich vs. No Income Tax American Households

April 11, 2010

Blogcritics - Would you choose being wealthy and paying income tax or making little enough to escape income tax? Americans today have a far greater chance than ever before of being in the latter group.

Sometimes there are statistics that you really need to meditate on for awhile. They open the door to critical thinking about American society. They shed light on a host of hot political and public policy issues. This is especially true for rich versus poor issues, taxes, justice and equality.

First, note the number of households in the United States: now at 115 million, which equates to an average of 2.6 people per household.

Now, think for a few moments and guess the answers to this question: What fraction of households have assets of $1 million or more, and what fraction will pay no federal income tax for 2009?

Take a moment, think seriously about what these two fractions might be.

To have net assets of $1 million or more certainly signifies people at the top of the economic ladder, but ... a million bucks is not what it used to be. A lot of ordinary people see themselves as middle class, making good incomes — probably older people, even with lower house values, can have wealth at this level.

And to pay no federal income tax certainly covers people at the bottom of the economic spectrum, but not necessarily just the very poor. They too may see themselves as middle class or, for some, the working poor.

For example, for 2009, a family of four with two children under 17 could have made $50,000 and escaped paying any federal income tax because of various tax credits and other benefits. Many two income households could avoid paying federal income tax, because of low but rather typical salaries.

Here are the answers to the above question.

1. Households with $1 million or more in net assets number just 7.8 million or 6.8% of the national total.


2. Households that will pay no federal income tax for 2009 number 54 million or 47% of the national total.

Thus, there are about seven times as many households paying no federal income tax, nearly half the nation’s households, as there are having $1 million or more in assets.

If a high income rather than assets is considered, then note that about 16% of households have annual incomes of $100,000 or more. This means that a lot of households with pretty high incomes have not accumulated the wealth level of $1 million in assets.

Households with incomes of $250,000 or more, however, number just under 2% of the nation’s total.

This is the group that will see higher taxes from the new health care reform legislation and now pays about half of all taxes. This group equates to about 2.3 million households and 6 million people that really are rich in terms of both wealth (assets) and income. These people can afford to pay more taxes because they have benefited disproportionately from past tax cuts and probably are not hurting much in this recession.

All these numbers shed some light on the considerable economic inequality that has gotten steadily worse in recent years. Yes, the rich have become richer, the poor poorer, and the middle class devastated, probably worse than ever, because the current Great Recession for millions of people is really just as bad as the Great Depression — financially and psychologically.

Take away the no income tax and high asset households and you have about 46 percent left or 53 million households with about 138 million Americans. This is a better view of the shrinking, at-risk middle class, households trying to survive in a cruel society with high economic insecurity. These people should be more worried about sinking into the lower class, no income tax paying group, than dreaming about rising up into the wealthy high tax paying class. The bitter truth is that upward economic mobility has largely become a myth, like the American dream — more like winning the lottery than a reasonable expectation from working hard.

Maybe all this explains why there are so many angry, anti-government Americans attracted to the tea party movement, and firmly entrenched independents fed up with both major political parties because they more serve corporate rather than public interests. With an enormous national debt, high unemployment that will not go away, and increasing number of people losing homes and needing free food, things are likely to stay bad or get worse for a lot of people.

Dwell on this: Do you really think that voting in different Democrats or Republicans will return the nation to a healthier condition? And this: Does having a positive attitude about the future require delusional thinking or heavy drug use to avoid thinking about it?