One of my concerns over the past year or so is the continued use of the phrase “half of all workers don't pay taxes.” It's one of those ideas that needs some context, and it's probably not the kind of context you've read about anywhere else.

The most important part of the discussion is that these are federal taxes. From that perspective only, the statement is true because it is based on publicly available IRS data about the federal income tax. Many workers and others do not pay income taxes. Workers who do not earn enough money to surpass the basic exemptions and deductions are an obvious example. There are workers who choose part-time work, many of whom are students, who pay minimal taxes on their earnings for this exact reason. Others may be investors who are living off of savings, such as retired workers who may be drawing down their IRAs and also have tax-free income such as municipal bonds.

But the federal government is not the only taxing authority. Everyone pays something, especially local and state taxes. Think of retired workers whose largest tax may be the property taxes they pay on their homes, and not their income tax. Income tax can be legally bypassed with ease by investing in municipal bonds, or by just drawing down savings that have already been taxed. Yes, people who live off their savings are avoiding taxes. (There are two good charts that show total tax rates at this site; see figures 3 and 4). About 60% of those who do not pay federal income tax pay social security tax (more about this ahead), and the balance are primarily students, and the elderly spending down their savings.