You have probably heard the statistic that 47% of households paid no federal income tax last year.  Sometime this statistic is disingenuously stated as 47% of households paid no tax.   There are probably very few, if any, households that pay no tax, since in addition to the federal income tax, there are payroll taxes. state and city income taxes, property taxes, sales taxes and more taxes.

Roughly two-thirds of the households that didn’t pay federal income tax did pay payroll taxes.  Of the remaining third that didn’t pay payroll taxes over half are elderly.  Only about 5% of those who paid no federal income tax are non-elderly with income over $20,000.  From these statistics it is fair to conclude that if you didn’t pay any federal income tax you were likely either elderly or had a very small income.

It is estimated that about 80% of households owe federal income tax before taking special tax breaks.   That leaves about 27% that paid no federal income tax due to taking tax breaks.  Although those with a lower income are able to use tax breaks to eliminate their federal tax liability those with higher incomes benefit even more from tax breaks.  “Tax breaks like the mortgage interest deduction, state and local tax deductions, deduction for charitable contributions and exclusion of contributions to pensions, 401(k) plans and employer-sponsored health insurance are much, much bigger and disproportionately flow to those with higher incomes. ”  Tax breaks are worth about 7-8% of income for low and middle income households.  For households in the top 20% tax breaks are worth about 11% of income.

Eliminating all these tax breaks would mean that a lot of the 47% would pay federal income tax.  It would also mean that most of the 53% would pay more federal income taxes.  That is probably not the result that those who complain about the 47% want.

I don’t think it is bad policy for the old and/or poor to not have to pay federal income tax.  The elderly have presumably already paid their fair share of taxes. Both Republican and Democrat Presidents have passed or expanded measures such as the EITC to help keep the poor off the tax rolls.  Only a small minority of those who don’t pay federal income taxes are the “welfare queen” type.

If you’re still concerned about such a large percentage of households having no federal income tax liability, there is good news.  It is estimated that only about 40% of households will have no federal tax liability for the 2012 tax year.

I have never made a purchase at Starbucks or purchased an Apple product. I’m guessing that puts me in the minority of U.S. consumers.

It isn’t difficult for me to not buy anything at Starbucks since I don’t like coffee. I used to work at a pizza shop and we would trade pizza for Starbucks. Since I don’t like coffee, I would get a smoothie. The smoothies were good, but not good enough that I would buy one with my own money.

There has been a little more temptation to buy an Apple product, but it has still been pretty easy to not buy an Apple product so far. I did get a free Shuffle as part of a promotion contest. Since I’m not that big of a music fan I didn’t use it much and ended up giving it away. The iPhone is somewhat tempting. From what I have seen it is better than my particular Android phone. Until recently though an iPhone would have cost me 4 or 5 times more than my Android phone and I don’t think the iPhone is that much better. Now that they are offering iPhones on prepaid plans I will consider getting one when I need to replace my current phone. I still won’t be willing to pay much of a premium to get an iPhone though.

Not buying Starbucks hasn’t really saved me money since I still spend plenty of money on dining out. If I had an expensive coffee habit, I think I would reduce my dining budget to offset the coffee cost. Not buying an iPhone has saved me a lot of money since my current phone plan is only $25 a month which is much cheaper than any iPhone plan available when I bought my phone.

There is nothing wrong with buying Starbucks or Apple products as long as you can afford them. You don’t need to buy them just because everybody else does though.

One of the ways I manage to spend very little is by not spending much on clothes. I had to buy some undershirts for my new job this week which doubled my clothing expenditure for the year. My only previous clothing expense for the year was for underwear. I estimate that I generally spend less than $100 on clothing.

I don’t have to buy clothes very often. Between getting clothes for my birthday and Christmas, getting free t-shirts from events such as 5ks or FINCON, and occasionally receiving other people’s castoffs I have almost all the clothes I need. Since I’ve had an established wardrobe at my current size the only clothes I need in a typical year are new socks and underwear.

I’ve found that my pants and shirts take a long time to wear out. This is despite not spending much on them. My cheap clothes last a long time. I have a couple of pairs of shorts that I bought at a thrift store for $1.15 each that I’ve had for years and they get a lot of wear. I have a pair of jeans that I bought for $5 new that has also lasted for years. I don’t have a bunch of shorts and pants (due to my expanding waist line) so they get worn a lot and they still hold up. I probably have a lifetime supply of shirts. I have donated or thrown away a bunch of my old shirts to reduce my supply of shirts, but I keep getting more free shirts.

Clothes aren’t important to me so I don’t want to spend a lot of money on them. I do try to dress professionally for work. Other than that as long as I don’t look like a vagrant (or at least look like an upscale vagrant) and I’m comfortable then I’m not worried about my clothes. If I could reduce my clothing to one set of clothes for each day of the week I’d be perfectly content with that.