In 2017, 44 percent of all US households paid no income taxes. Consistent with this statistic, only 3 percent of all federal income taxes are paid by the bottom half of earners in America. When considering options for tax reform, it is important to remember that, after accounting for tax credits, many taxpayers in the middle and lowest income brackets already pay no income tax.
The only way to truly help those earners who are already not paying income taxes is to boost economic growth through fundamental tax reform. Economic growth drives up demand for these workers and thus boosts their wages. Expanding tax credits, as proposed in both the House and Senate tax reform plans, would further narrow the tax base by increasing the number of nonpayers in the tax system. As the tax base becomes smaller, higher rates are required to raise the same revenue from those still paying taxes. These higher rates reduce the capital available to hire employees, thus reducing employment and wages.