What you may not know about your income tax

OK, class. Sit up straight. Only seven days to the tax-payment deadline in the United States. Time for a brief tax quiz:

Answer: Roughly 91 million individuals, filing 43.4 million tax returns (some of them joint, some single parents). They face zero income tax liability this year, and may even get subsidy money from the lnternal Revenue Service, reckons Scott Hodge at the Tax Foundation in Washington. That's out of an estimated 136 million federal tax returns that will be filed next year for 2006. These tax-free Americans, mostly in low-income tax brackets, take advantage of various tax breaks, such as the personal deduction, $1,000 child credits, or an Earned Income Tax Credit.

Another 15 million households and individuals file no tax return at all. Most make less than the taxable income threshold of $7,600 a year.

So roughly 121 million Americans, 41 percent of the population, "will be completely outside the federal income tax system," the tax research group finds. That includes those who are later refunded the full amount of the tax they paid - or more, because of tax credits.

The number of tax returns with zero or negative tax liability has risen from about 18 percent in 1983 to 32 percent this year. That number has been boosted considerably by the expansion of the child tax credit in the tax-cut legislation of 2001.

Wait a minute, says Bob McIntyre, director of Citizens for Tax Justice in Washington. He holds that 12 million dependents with low incomes, such as teenagers delivering newspapers, shouldn't be included in that 121 million income-tax-free count. Nor do lower-income people really escape the tax collector. The working poor pay combined Social Security and Medicare taxes that amount to 15.3 percent of their wages.

"How awful that the poor don't pay income taxes," Mr. McIntyre says sarcastically. "I looked at the study and laughed." Though payroll taxes are "dedicated" to social purposes, such as pensions, to many economists a tax is a tax is a tax.

To the conservative Tax Foundation, the federal income tax base should be "widened" (presumably to include some of those not paying income tax) to enable a further reduction in overall tax rates. That "reform" will be a difficult sell for lawmakers, the tax group notes, because so many millions of Americans pay no income taxes.

A: In 2001, $353 billion, estimates a new book from the Economic Policy Institute. That's the same sum as the projected fiscal 2007 federal budget deficit.

If Congress gave the Internal Revenue Service more money to hire tax collectors, the payoff would be "high," says Max Sawicky, an author of the book.

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