Minor Thoughts from me to you

The Fiscal Costs of Nonpayers

The Fiscal Costs of Nonpayers →

This is an interesting study, from the Tax Foundation.

The record growth in the percentage of Americans who pay no federal income taxes because of the generosity of the credits and deductions in the tax code has received much attention recently.

We find that the growth of nonpayers is strongly associated with increases in transfer payments and the national debt. Indeed, the twenty-year growth in nonpayers is associated with more than $213 billion in increased transfer spending and a 14 percentage point increase in the debt-to-GDP ratio in 2010 alone. These findings imply that when voters perceive the cost of government to be cheaper than it really is, they demand ever more government benefits because they either don’t feel the cost directly or believe that others will be paying those costs.

Our results indicate that the dire fiscal straits we are now in, and which much of Europe is struggling with as well, can only be responsibly addressed through a more balanced tax burden. In particular, so long as income taxes fund the largest part of government spending, exempting half the population from income taxes is not a sustainable fiscal model. Debt accumulation and eventual default await those democracies that fail to connect a majority of voters to the cost of government spending.