Here is a chart that shows how much income taxes are paid by each income tax group:
As you can see, the top-earning 1 percent of Americans (the 1.4 million returns making more than $380,000) paid 38 percent of federal personal income taxes while the Americans in the lower half of the income spectrum (or 70.0 million returns) paid 2.7 percent of the total. This chart also shows that roughly half of taxpayers pay for almost all of federal personal income taxes.
Based on this data, it is hard to say that top income earners are taxed unfairly lightly.
More importantly, the people in the top are not always the same year after year. This week, E. J. Dionne’s Washington Post column quoted an author as saying:
“The effective rate for the top 400 taxpayers has gone from 30 cents on the dollar in 1993 to 22 cents at the end of the Clinton years to 16.6 cents under Bush,” he said in a telephone interview. “So their effective rate has gone down more than 40 percent.”
In fact, the top 400 aren’t a static group. There’s lots of income mobility in and out of the “top 400″ every year, and most of their income is due to highly fluctuating capital gains (which are taxed lower than ordinary income). IRS data for the top 400 over a 15-year period shows that 72 percent of them appeared only once. A little more than 12 percent appeared twice, and a little over 15 percent appeared three times or more. Trying to fine-tune tax policy to attack the “top 400″ will only tax different people tomorrow than are there today.
Even if they were a static group, we aren't going to make up a $1,400 billion annual shortfall on the backs of any 400 people no matter who they are.
Reply to this commentLinkReport AbuseTo see this in perspective, there should be a matching diagram with the relative incomes of the same groups. Also, seeing the same diagram for different times would be nice, since the post does discuss the changing burden over the years.
Also, what difference does it make that the 400 people at the top will be different at different times? I don't think that the people arguing for higher taxes on that group are under the delusion they are always the same people. They just think that whomever is up there should be taxed. If next year some of the top 400 have dropped to the top 1000 or 10,000 then their tax will be lowered appropriately and they will still be doing all right.
Or is Veronique arguing some of the 400 have dropped into destitution and thus the tax on them when they were super-rich is a grave injustice? If that is the case, then I would love to see that evidence; but I suspect the 400 do all right even when they are no longer at the very very top.
Reply to this commentLinkReport AbuseWhen I pay my taxes, I don't just pay income taxes, I pay payroll taxes as well. If your chart was honest, it would include those as well. The rich pay far less payroll taxes as a percentage of their income than the poor and middle class.
Reply to this commentLinkReport AbuseUnless you are some Fortune 500 executive or a highly paid tenured college professor, income fluctuation is a fact of life, and most definately so, for small business.
I worked my a** off for 10 years as a small business owner making no more than $40,000 a year for 10 years except one year when I made $400,000. I was stunned to see that most of it went away in taxes.
That is the downside if taxing income by the year. For one year I was considered rich by our government and the government took its larger share. Nevermind all those other years. Well, at least there was a cap on social security!
Reply to this commentLinkReport AbuseYou know what I would find really interesting? An analysis that took transfer payments into account. For each of the percentiles presented in the graph, I would like to see the following calculated: AGI - Taxes + Transfer Payments Received. I'd like to see that number derived expressed as a percent of total AGI and the current percentages compared to those of twenty years ago.
To be fair, all taxes should be included - state income, sales, property, gas, etc.
I'd include Social Security and Medicare in the transfer payment total.
And the transfer payments should include those at the state level.
It may be well nigh impossible to get at this metric, but given the explosion in transfer payments, I bet the results would be enlightening.
Reply to this commentLinkReport AbuseWhat I'd like to know from Dionne and his ilk (see Katrina Von Whatshername's column in this morning's WaPo) is what they mean when they say -- and they say it repeatedly -- that the "rich" should pay their "fair share." I'm all for everyone paying their "fair share," but Dionne and the others get away with it by never having to define the term. One gets the strong impression that it's an anecdotal battle at best.
Reply to this commentLinkReport AbuseNot to get overly technical but high-earners can participate in short term trading, the capital gains of which are not taxed as ordinary income.
These are the kinds of slippery stats that would never be accepted if they reflected negatively on Republican positions so it's slightly bogus to attach too much importance to them.
Reply to this commentLinkReport AbuseMaybe I read the text accompanying the chart wrong. So 73.7% of taxpayers earning less than $10,000 pay some income tax, some of it presumably at 15%, and the 400 highest-AGI taxpayers paid at...16.6%. Behold the power of the fully operational flat-tax lobby. Would the idea be for GOP Sunday talkers to staple this to their foreheads so their opponents could read their talking points more readily?
There's no way to tax the bottom quintile enough in relation to benefits received to make them rational small-government advocates. The targets, unfortunately, should be middle-quintile TPs who pay nothing because of targeted credits. Roll back some of those and fasten your seat belt at election time.
Reply to this commentLinkReport AbuseIt really doesn't matter how much you can extract from the rich or poor.
What the Republicans should have stamped on their forehead is $12,000.
That is the amount of money that Obama proposed the Federal Government spends every year per living human in the country. That upper-middle class guy with a wife and two kids who brings in $100k or so and pays about $25k (including SS/Medicare) isn't even pulling half of his burden.
The Doctor making upwards of $200k per year is probably just barely pulling his weight.
There just aren't enough rich people in the world to finance a government that spends that much.
Reply to this commentLinkReport Abuse@ StuartH: income averaging?
Reply to this commentLinkReport Abuse@Counterfactual - this is a bait and switch. Dionne talks about taxing 400 people to try to get people to support higher taxes on people who make FAR less per year. While no doubt these 400 are rich, taxing income won't affect the vast majority of the rich - they ALREADY have their money. Going forward won't take a penny of that.
but I digress. When they bring up this strawman, it's around $250K/year. But that's not even enough, it'll have to go down to $50K/yr to have any real impact. Besides, with all the S-corps and sole proprietorship at that the $250K-%500K (approx 50%) level it will mean 1 of 3 things - lower employment by small businesses, less revenue as those businesses shelter that income, or a mixture of both.
Taxing the rich sure feels good, because it hits that envy point everyone has. But envy is a poor basis for economic policy, don't you think?
Reply to this commentLinkReport AbuseThe point you are trying to make with the graph is only intellectually convincing if you also include what portion of the income is earned by each group. So, for example, if the top %1 also earn 38.7% of the income, then the current system would seem "fair" (at least with respect to the top %1). But if the top 1% earn 50% of the income, then the top 1% should pay more in taxes, right?
I'm all for a flat tax (e.g., 10% on every dollar after the poverty line; I'm a little more generous than Deity), but we need to make intellectually convincing arguments.
Reply to this commentLinkReport Abuse"IRS data for the top 400 over a 15-year period shows that 72 percent of them appeared only once. A little more than 12 percent appeared twice, and a little over 15 percent appeared three times or more." What does it say about the state of journalism in the US that every article published about Obama's tax increase proposals says that they will undo the "Bush tax cuts for the rich." Filthy hacks.
Reply to this commentLinkReport AbuseImportant numbers to those of us who are trying to understand and be adults about these things.
2012 can't come soon enough.
Reply to this commentLinkReport AbuseAlso recall that many small business owners file company returns as individuals. Once the personal rate climbs as high as the corporate rate you'll see some "rich" people mysteriously disappear from these charts as they change their accounting (or go belly up).
Then Dionne and his commie pals can congratulate themselves for appearing to resolve "income inequality."
And no fair trying to muddy the water with FICA -- until the Dems fess up that SS is nothing but a ponzi-scheme welfare program the payroll tax should be as capped as the benefit schedule.
Reply to this commentLinkReport AbuseIt would be helpful to know how much each group earned as a % as well. If the top 38% only made 31% of all reported income than that's a problem. If they made 50% then that's a problem, too. I think.
Reply to this commentLinkReport Abusedrl, First off…. You wrote "your chart". That chart is from the IRS so it is really "our chart”. If you believe the chart is dishonest then you have a beef with the IRS - join the club. Second.... Your desire to lump payroll taxes in with income taxes is indicative of the poor stewardship of our money problem on the part of the government. As far as too many politicians are concerned, income taxes and payroll taxes are indeed all one big pot of money – hence they raid the social security/medicare/medicaid trust fund to pay for other stuff and leave behind worthless (accounting gimmick) IOU’s. Payroll taxes = specific benefits for which everyone is eligible (except for Medicaid which is only for the poor). Income taxes = everything else the federal government spends money on. That is why the chart does not and should not show payroll taxes. If you want to talk payroll taxes, let’s start a new thread and we can talk about why FDR (and later LBJ) structured that system the way they did.
Reply to this commentLinkReport AbuseI love when Dionne and others engage in this intellectually dishonest exercise of looking at incomes and the share of taxes paid. They include capital gains on investments for both, and never once do they mention the effect of inflation on the "income" or "tax rates" paid. Thus, if you make $100,000 on a stock you've held for 10 or more years, you are taxed at a 15% rate. But if inflation has eaten up a third or half of that gain, the effective tax rate is much more than 15%. Likewise, when you reduce the income to reflect the fact of inflation, the amount of the actual gain is much less. These aren't things that anyone really disputes. But they don't fit the narrative, so Dionne and others like him simply ignore them because the numbers aren't as pretty when you acknowledge them.
Reply to this commentLinkReport Abuse"What's the fair share?" is an easy question, if you've been paying attention...It's not vague at all, it's the 39.6% top rate from the Clinton era, which led to the best job growth in history.
Reply to this commentLinkReport Abusecrn, comparing the 73.7% of those with incomes under $10,000 (the ones paying some income tax, "some of it presumably at 15%") with the 400 highest-AGI taxpayers paying an average federal income tax rate of 16.6% on ALL of the income in that group (hence, the word "average" in "average federal income tax rate") is an apples to oranges comparison. The text accompanying the chart does not mention the average federal income tax rate of those with incomes under $10,000. In other words, 26.3% of those earning under $10,000 pay 0%. The 73.7%’rs pay something (indeed "some of it presumably at 15%"). However, the 73.7%’rs are not paying 15% on ALL of their income (unless all of their income was in the form of cap gains – a tiny minority to be sure). Therefore, you cannot equate the 15% tax rate as applied to the 73.7%’rs to a 15% average federal income tax rate for the entire group of individuals earning under $10,000. You would have to fold the average federal income tax rate for the 26.3%’rs (which we know is 0%) into the average federal income tax rate for the 73.7%’rs (which, again, is not specified) to get the average federal income tax rate for the entire group earning under $10,000. Then you would have the apples to apples comparison of average federal income tax rates I think you are attempting.
Similar to the conclusion in the text accompanying the chart, my explanation above I believe also signals “a tax system that is not only progressive, but one that is convoluted and unfair”.
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