by Will Freeland, William McBride, Ed Gerrish
September 21, 2012
There is reason to be concerned about the broad political and fiscal consequences of disconnecting the 58 million Americans who don’t pay income tax from the basic costs of government. This report finds 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. Similarly, it finds that for every 1 percentage point increase in the share of tax filers who are nonpayers, the debt as a percentage of GDP increases by 0.704 percentage points. 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.