Who Are the 1,400?

A recent analysis by the Detroit Free Press (reprinted in the Pioneer Press today) found that an increasing percent of those people the Right loves to hate -- you know, the ones who pay no federal income tax -- are making incomes that would generally be considered middle class if not upper-middle or beyond.

According to the story by Todd Spangler, "As of 2009, more than 20,000 filers making more than $200,000 a year...owed no income tax..." Of those 20,000, 1,470 brought home more than a million dollars a year, income-tax-free.

Most of the people who pay no income tax have only modest incomes (76 percent make under $25,000; 83 percent have adjusted gross incomes under $30,000). But the share of the non-payers who are better off has been increasing each year.

How does this happen? The story offers a sidebar with three scenarios, but only one of them describes a family making more than the median household income. In that scenario, a married couple filing jointly, with income of $100,000 and three minor children (one of whom is in college despite being under 18) managed to deduct their way out of taxes through a combination of mortgage interest, college and child care expenses, IRA investments, and medical expenses. Clearly, this is an unusual family that has both child care and college expenses, and if they really have all of these expenses, they don't have a whole lot of money to spend. So it almost makes sense that their income taxes would bottom out.

Essentially, it's an example of the Bush tax cuts at work. The cuts reduced rates, but also doubled the child tax credit, got rid of the "marriage penalty," and cut capital gains taxes. Under Obama, other smaller breaks have been added, such as Making Work Pay and new college credits. 

But what's up with the 1,400 millionaires who pay no income tax? Do they each have 20 children with a quarter of them in child care, a quarter in college, and two who have super-high medical bills? And does their income all derive from capital gains, which are taxed at a much lower rate?

I'd love it if someone could find out the answer to that.