Skip to comments.US Federal Taxes by Income Level
Posted on 04/14/2011 10:04:04 AM PDT by justlurking
Since Obama is starting up the "tax the rich" dogma again, I thought it was time to discuss exactly how much taxes the "rich" are paying.
The Congressional Budget Office publishes a great deal of information about how the federal tax burden is distributed, and compiles all of it at the cited link. It provides data from 1979 to 2007, adjusted to 2007 dollars so that you can compare how it has changed, without worrying about inflation.
However, I discovered that someone has taken all this information and created a series of graphs that make it much easier to understand:
Follow the above link to see all of them, including a copy of the source data. But, I'll excerpt a few here:
Please click on any image to see the description of the image, which includes some notes about how to interpret it.
First, a graph to explain the rest:
This shows the distribution of US households among the different income levels. It should be obvious to most, but this really helps to contrast this against the other graphs that follow.
Next, compare the above graph to this one, which shows how much (as a percentage of the total) that each group pays in individual income taxes:
See the differences in sizes. The top 1% (in purple) is barely visible in the first graph, but the proportion of income taxes paid by the top 1% has nearly doubled in the past three decades.
In contrast, look at the bottom two bands (red and green). The lowest 20% aren't even appearing on the chart: they pay no individual income taxes. And the next 20% have declined to effectively zero in the past 30 years. The next 40% above that have declined slightly. And all of these have declined at the expense of the top 10% -- especially the top 1%.
You might be asking: what about all the other federal taxes? That's a fair question, and the CBO answers it as well:
As you can see, the effect is not quite as pronounced. But, Obama is talking about raising federal individual income taxes on the "rich". As you can see, they are already paying a significant percentage. Depending on what you think "rich" is, they may be paying most of individual income taxes.
One criticism is that the "rich" have been increasing their share of overall income. That's true, but not to the extent that they have been paying additional federal taxes. See for yourself:
One can debate all day about what might be the "fair share" of taxes that the "rich" should pay, but there's no doubt that they are paying more than everyone else -- both in amount and in proportion of their income. Don't believe it? Here's the average tax rates for each income level:
The negative values for the bottom categories (the lowest 40%) are not a mistake. The CBO accounts for various tax credits as a "negative" income tax, resulting in a negative income tax rate.
You might be wondering: what income level do I fall into? It takes a bit of calculation to determine that, but let's start with this graph:
Remember that this is in 2007 dollars. So, think back to what your comprehensive household income was in 2007 -- be sure to include all sources of income.
Next, divide your comprehensive household income by the square root of the number of people in your household. Don't panic... here's a handy table:
Finally, take your number (after dividing) and find it on the left side of the graph. Look to the right side at the same location, and see which lines it is between.
For example, if your number is $50,000, it's just above the blue line on the right side of the graph. That means you just barely made it into the 80-60% income level, or the fourth quintile.
Another way to interpret this graph: pick the percentile that you think is "rich". Do you think it's the top 10%? Then, the minimum household income (after adjustment by household size) for what you believe is "rich" was just over $100,000 in 2007.
If the creator of these graphs happens to read this posting, then I want to thank him/her for doing so. It's made the data much easier to understand.
In 1986, 1991 and 1993 the Progressive Democrats in Congress made the same pledge 0 did yesterday. Give us more tax money and we will cut the deficit. In 1986, 1991 and 1993 Taxpayers coughed up the money and the Congress increased spending exponentially and the tax payers got more debt then ever.
0 is merely signing the 4th verse of the same old DC Progressive song. It is just another lie.
How about this time we try something that has NEVER been tried by DC, we try to balance the budget strictly on budget cuts with NO tax increases?
Giving more tax money to DC is the equivalent of giving a heroin addict free drugs thinking it will cure his addiction
ping for later
The Bottom Line: The top 10% of income earners pay 71% of federal income taxes.
Lets say your federal tax is 35%. State taxes here in MA is near 6%. With the translation risks of going from an apple to an orange, figure your local property tax if you own a home is another 5%. Further, lets guesstimate at 10% the other stuff... sales tax, auto excise, gas tax, utility taxes, "sin" taxes, etc. Add that up, and figure you are working 56% of your time for the government.
The graphs seem improbable to me, because with the Earned Income Tax Credit and other Federal Transfer Payments, I’m pretty sure the bottom 20% have a net negative tax rate.
They are takers, not producers.
You are correct. But, it looks like the graphs showing the share of taxes stops at zero.
I switched out a graph at the last moment, substituting total federal taxes for individual income taxes. It shows the net negative tax rates for the bottom forty percent (at least in 2007):
These are great. Very useful for nailing ignorant lefties.
“The Rich should pay more!”
“Oh? What percentage of all federal income taxes do you think, say, the top 10% SHOULD pay?”
“I dunno. Half?”
“I agree. Unfortunately, they’re already paying 71% — and you wanted them to pay even more. What do you think now?”
Aha. As expected, the bottom 40% are net TAKERS not Tax Payers!
By the time you figure in all taxes -- Social Security/Medicare, excise (i.e. gasoline), and other taxes, the lowest 40% creep into the 5%-10% range.
But, most people that complain about "the rich don't pay taxes" are referring to individual income taxes. And it's clear that the lowest 40% aren't paying them -- they are actually getting more back than they pay.
And guess who is taking up the slack?
All things considered, I wish I were one of the rich.
And just in case the ignorant ones try to back-pedal and insist that you include ALL federal taxes: in 2007, the top 10% paid 55.0%.
So do I. But, the high marginal income tax rates plus all the other taxes (state, federal, and local) conspire to prevent you from getting there.
They do have a negative share of income tax. Check out the data set titled "Share of Individual Income Tax Liabilities" on page 4 of the PDF at the link. In fact, according to that table, beginning in 2002 the bottom 40% of income earners had a negative share of income tax.
Then those folks that made it sure must have come up with some nice tax avoidance get-arounds.
Most of the "rich" are "old money". Meaning... they already have it, and have had it for a long time.
There are a fortunate few that achieve it through a combination of hard work and being in the right place or having the right idea at the right time. But, they are rare, in the giant scheme of things.
It's difficult to become "rich" by working in a middle-class job and saving your money. Even if you manage to set aside a significant percentage of your income, the marginal tax rates take 25%, 28%, or even 33% of every bit of investment income that you accumulate (and that doesn't factor in state/local taxes that some have to pay). There are ways to reduce that to as low as 15%, but you have to plan carefully.
However, one thing that really helps: IRAs and 401(k)'s. You eventually have to pay taxes on it (unless it's a Roth), but hopefully it will be at a lower rate. Depending on your definition of "rich" -- you won't get rich with an IRA, but you can certainly be "comfortable".
Graph #5 (Average Total US Federal Tax Rate) shows why GWB is vastly underrated as a president. He achieved a larger overall tax cut than Ronald Reagan did in the 1980’s. True, he also overspent, but absent those tax cuts, do you think we’d be having the conversation we’re having today? Had we bankrolled all that new spending with taxes, the discussion would be how much further to increase taxes and spending as opposed to how to reduce spending to better match the level of taxes coming in etc.