40% of Americans Are “Lucky Duckies” Who Pay No Federal Income Tax

The Tax Foundation has crunched the numbers again to tell us just how many Americans, and what sort, manage to get through the year without paying any federal income tax:

Tax Foundation economists estimate that for tax year 2004, a record 42.5 million Americans who filed a tax return (one-third of the 131 million returns filed last year) had no tax liability after they took advantage of their credits and deductions. Millions more paid next to nothing.…

In addition to these non-payers, roughly 15 million individuals and families earned some income last year but not enough to be required to file a tax return. When these non-filers are added to the non-payers, they add up to 57.5 million income-earning people who will be paying no income taxes.

Even 57.5 million is not the actual number of people because one tax return often represents several people. When all of the dependents of these income-producing people are counted, roughly 120 million Americans — 40 percent of the U.S. population — are outside of the federal income tax system.

I hope this April 15^th you find yourself among the lucky duckies in this 40%.

The IRS has lost again in its battle to save the long distance telephone service excise tax from the letter of the law.

This battle has now been fought in multiple circuit courts and the IRS has lost every time. They just lost again in the Sixth Circuit. When Secretary of the Treasury John Snow testified before Congress two months ago, he was interrogated by Representative Jim Ramstad:

Mr. RAMSTAD. Mr. Secretary, I want to ask you about a thorn in the side of many taxpayers, and I am referring to the telephone excise tax. As you know, this tax was first enacted — well, it was enacted in 1898 as a temporary tax to fund the Spanish-American War.…

Now, in the past few years, a number of taxpayers, business taxpayers, have challenged the IRS’s collection of this tax in Federal court. In fact, no fewer than three Federal courts and a host of Federal District Courts have all ruled against the IRS. Can you please tell me why in the world does the IRS continue collecting this tax, and can you give us an indication of how long the Government will keep litigating this issue? Mr. Secretary, why not give it up?

[Laughter.]

Secretary SNOW. Well, I think the courts may require us to do that very soon. You know, this is pending in the Sixth Circuit. The Department of Justice took an appeal from the District Court. We are awaiting that judgment. Should the judgment come down in alignment with the prior three Federal Circuit Courts, I think the handwriting is on the wall.

Mr. RAMSTAD. That will be the end of the temporary tax enacted in 1898 to fund the Spanish-American War?

Secretary SNOW. I would think the time to bring that to an end would be upon us.

Don’t pop the champagne corks just yet. First off, maybe he was just bullshitting. Second, this only applies to the excise tax on long distance phone service where that service not priced by the time of the call and by the call’s geographical distance. But this still means Uncle Sam is out several billion dollars, so maybe it’s cork-popping time after all.