In recent years, credits for low- and middle-income families have grown so much that a family of four making as much as $50,000 will owe no federal income tax for 2009, as long as there are two children younger than 17, according to a separate analysis by the consulting firm Deloitte Tax.Households that have no income tax liability, however, often pay other taxes, including state and local sales and property taxes, cigarette and gas taxes, and payroll taxes that fund social security. Nevertheless, many of these households end up earning a "profit" from the federal government because they get more in tax credits than they pay in taxes.
Despite this reality, many people are convinced that the federal government is gobbling up their income. Even the most passionate tax critics are deeply mistaken about the rate of taxation. Earlier this year, Bruce Bartlett published an article in Forbes that surveyed participants in a Tea Party rally regarding their views of federal income taxes. The respondents had grossly unrealistic perceptions about the rate of taxation in the United States. In particular, most of them believed that the federal income tax rate was 3 times its actual level. And 2/3 of them believed that the Obama administration had increased their taxes -- when the opposite is true.