About 46 percent of all tax filers (individuals or households) pay no federal income taxes each year because of various exclusions. High-income tax filers make up a tiny portion of that number, but they are by far the biggest beneficiaries. More than half of the tax revenue lost to the most common tax exclusions stays in the pockets of the richest one-fifth of Americans, according to an analysis by the Congressional Budget Office.
While it's rare for high-earners to pay no federal income tax, it's not unheard of. In 2011, for instance, about 433,000 tax filers with incomes over $100,000 paid no federal income tax, according to estimates based on limited IRS data by
the Tax Policy Center, a nonprofit think tank. That number includes approximately 4,000 filers with an income of $1 million or more.The wealthy and poor households that paid no income tax in 2011 did so for drastically different reasons. Most low-income filers — those with a pretax income of $20,000 or less — who paid no tax did so because of the basic structure of our progressive tax system, which determined they made just enough to cover family expenses, or less.
By contrast,
high earners who paid no tax were primarily able to do so because of a wide array of other special provisions in tax law. Roughly 1,000 of the 4,000 millionaire non-payersin 2011 did so because their income that year was locked away in individual retirement accounts not subject to federal taxes, according to Roberton Williams of the Urban Institute, one of the authors of the Tax Policy Center analysis.
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