There is "a situation in this country where you're nearing 50 percent of people who don't even pay income taxes."

Eric Cantor on Wednesday, April 27th, 2011 in an appearance on CNBC's "Squawk Box"

Eric Cantor says almost 50 percent of Americans don't pay income taxes

Majority Leader Eric Cantor appeared on CNBC April 26.

House Majority Leader Eric Cantor has been unequivocal in demanding a "real" deficit reduction plan if House Republicans are to consider raising the nation’s $14.3 trillion debt ceiling.  

Cantor, R-7th District, recently appeared on CNBC’s "Squawk Box" to talk about various crises: namely the "debt crisis," the "spending crisis" and the overall fiscal crisis the nation might face if we don’t cut spending.  

Entitlements must be addressed, said Cantor, who last month voted for a House Republican budget plan that would redesign Medicare and Medicaid. Cantor rejected increasing tax rates. But he acknowledged  the need for a "pro-growth tax proposal" that would eliminate some special interest tax deductions and loopholes to modestly increase revenue.

"We also have a situation in this country where you're nearing 50 percent of people who don't even pay income taxes," he said.

Is it true that half of all Americans pay no income tax? Let’s take a look.

First, a technical note. When Cantor says people, he means "tax-filing units," which refers to individuals or couples that either file a tax return or would have if they had earned enough income, according to his staff.  

To support his assertion, Cantor’s camp provided a variety of studies and media reports that do indicate about 50 percent of U.S. households owed no federal income tax in 2009 -- the most recent year tax data are available.

In 2009, for example, the Tax Policy Center projected 47 percent of people would pay no income tax that year, up from previous estimates of 38 percent -- largely due to additional tax credits through the American Recovery and Reinvestment Tax Act of 2009.

Still, that’s a bit dated. Anything newer?

The Joint Committee on Taxation, sent a letter to Congress on the matter only days after Cantor’s "Squawk Box" appearance.

Using 2009 tax data, the committee estimated that slightly more than 50 percent of tax-filing units actually paid no income tax.

"In summary, for tax year 2009, approximately 22 percent of all tax units, including filers and non filers, will have zero income tax liability, approximately 30 percent will receive a refundable tax credit, and approximately 49 percent will have a positive income tax liability," the letter reads.

"That’s consistent with the numbers we’ve come up with," said Roberton Williams with the Tax Policy Center.  

"The main reason is the fact that we don’t specifically use the tax system to collect taxes; we use it for tax collections and to deliver social policy," he said. "Because of that we end up giving people money that could be provided to them through spending programs."

But because the U.S. uses the tax system to distribute money, it reduces the tax liability for 51 percent of tax filing units to, or below, zero.

Williams said that’s largely due to popular tax breaks, or tax expenditures.  

"There are lots and lots of them. We estimate they total more than a trillion dollars a year in reduced taxes and in fact the bulk of those go to the top end of the income distribution," he said.

Even so, because high earners have so much income liability, the breaks still don’t bring them down to zero. But popular lower and middle income breaks like earned income tax credits, child credits and mortgage interest deductions do get a majority of the population off the hook.  

So let’s look back.

Cantor acknowledged the need for eliminating certain tax loopholes and deductions while also pointing out that "we also have a situation in this country where you're nearing 50 percent of people who don't even pay income taxes."

Not only are we nearing that situation, but as the Joint Committee on Taxation pointed out shortly after Cantor’s statement, we moved beyond it. So we find the Majority Leader’s statement True.