The Palmetto Insider

The blog of the South Carolina Policy Council

Record Number of Taxpayers Pay No Taxes. So Who Pays for Big Government?

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South Carolina is among a group of southern states with the distinction of having a significant number of tax filers with no tax liability. What does that mean?

The Tax Foundation, drawing from 2008 IRS data, reported today that “a record 52 million filers—36 percent of the 143 million who filed a tax return—had no tax liability because their credits and deductions reduced their liability to zero.”

It sounds like a good thing—having no tax liability. But it’s also a sign of the bad economic times, and an indication of how many people are asking other taxpayers to pick up the tab. South Carolina is #6 on the list, with 40 percent of tax filers having no tax liability. Mississippi is #1 – with 45 percent of nonpaying filers. Georgia, Arkansas, New Mexico and Alabama round out the top 5. The U.S. average is 36 percent while Alaska ranks lowest at 21 percent.

As we’ve written before, South Carolina’s own tax rates are also skewed, such that a minority of taxpayers are responsible for paying for an ever-increasing level of state spending. Consider who pays S.C. income tax, according to data from the S.C. Department of Revenue:

State Income Tax Burden: Tax Paid Share of Income
Top 1% (Above $340,000) 24.8% 22.1%
Top 5% (Above $93,000) 44.6% 41.5%
Top 10% (Above $64,000) 60% 54.7%
Top 25% (Above $30,000) 4.9% 79.6%
Top 50% (Above $8,700) 97.8% 88.1%
Bottom 50% (Below $8,700) 2.2% 11.9%

 

The solution? As recommended by Unleashing Capitalism, the state should implement a flat rate income tax of 3.5 percent, with an exemption on the first $15,000 of income. Or, perhaps even better, a flat-rate, sales-tax-only reform that would enable the state to eliminate the income tax altogether. Until then, take small comfort in the fact that plenty of other folks … from Hollywood producers to billion-dollar aircraft manufacturers to your neighbor down the street … isn’t paying taxes.

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Written by Jameson Taylor

May 26, 2010 at 12:36 pm

Posted in Economics, Taxes

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