WASHINGTON - As millions of procrastinators scramble to meet today's tax filing deadline, ponder this: The super rich pay a lot less taxes than they did a couple of decades ago, and nearly half of U.S. households pay no income taxes at all.
The Internal Revenue Service tracks the tax returns with the 400 highest adjusted gross incomes each year. The average income on those returns in 2007, the latest year for IRS data, was nearly $345 million. Their average federal income tax rate was 17 percent, down from 26 percent in 1992.
Over the same period, the average federal income tax rate for all taxpayers declined to 9.3 percent from 9.9 percent.
The top income-tax rate is 35 percent, so how can people who make so much pay so little in taxes? The nation's tax laws are packed with breaks for people at every income level. There are breaks for having children, paying a mortgage, going to college and even for paying other taxes. Plus, the top rate on capital gains is only 15 percent.
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There are so many breaks that 45 percent of U.S. households will pay no federal income tax for 2010, according to estimates by the Tax Policy Center, a Washington think tank.
"It's the fact that we are using the tax code both to collect revenue, which is its primary purpose, and to deliver these spending benefits that we run into the situation where so many people are paying no taxes," said Roberton Williams, a senior fellow at the center, which generated the estimate of people who pay no income taxes.
The sheer volume of credits, deductions and exemptions has both Democrats and Republicans calling for tax laws to be overhauled. House Republicans want to eliminate breaks to pay for lower overall rates, reducing the top tax rate from 35 percent to 25 percent. Republicans oppose raising taxes, but they argue that a more efficient tax code would increase economic activity, generating additional tax revenue.
President Obama said last week he wants to do away with tax breaks to lower the rates and to reduce government borrowing. His proposal would result in $1 trillion in tax increases over the next 12 years. Neither proposal included many details.
In all, the tax code is filled with a total of $1.1 trillion in credits, deductions and exemptions, an average of about $8,000 per taxpayer, according to an analysis by the National Taxpayer Advocate, an independent watchdog within the IRS.
More than half of the nation's tax revenue came from the top 10 percent of earners in 2007. More than 44 percent came from the top 5 percent. Still, the wealthy have access to much more lucrative tax breaks than people with lower incomes.
The law is packed with tax breaks that help narrow special interests. But many of the biggest tax breaks benefit millions of American families at just about every income level, making them difficult for politicians to touch.
The vast majority of those who escape federal income taxes have low and medium incomes, and most of them pay other taxes, including Social Security and Medicare taxes, property taxes and retail sales taxes.
Why the delay?
Taxpayers got an extra three days to file their federal returns this year. They can thank the nation's capital for the extra time.
The filing deadline was delayed until midnight tonight because the District of Columbia observed Emancipation Day on Friday. By law, local holidays in the nation's capital affect tax deadlines the same way federal holidays would. States generally follow the federal deadline.
Emancipation Day marks the day in 1862 when Abraham Lincoln signed a law ending slavery in D.C. It was eight more months until he signed the Emancipation Proclamation, which eventually led to all slaves being freed.
April 16 fell on Saturday this year, so the holiday was observed April 15, the traditional tax-filing deadline.
the breaks
Among the biggest tax breaks:
• 34.6 million taxpayers reduced their federal income taxes by a total of nearly $77 billion by deducting the interest they paid on their home mortgages.
• 36 million families saved more than $54 billion from the $1,000 per-child tax credit.
• 40.7 million taxpayers cut their federal income taxes by $40 billion by deducting state and local income, sales and personal property taxes.
• 33.5 million households cut their taxes by $21 billion by deducting state and local real estate taxes.
• 36 million families cut their taxes by nearly $35 billion by deducting charitable donations.
Source: Joint Committee on Taxation
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