Posted by: bj | August 24, 2009

Federal Income Taxes – Why go to work if the rich will pay for us

Washington, DC, October 4, 2007 – New data released by the IRS today offers interesting insights into the distributional spread of the federal income tax burden, new analysis by the Tax Foundation shows.

Summary of Federal Individual Income Tax Data, 2005 (updated October 2007)

 

 

Number of Returns (thousands)

AGI

($ millions)

Income Taxes Paid

($ millions)

Group’s Share of Total AGI

Group’s Share of Income Taxes

Income Split Point

All Taxpayers

132,611,637

$7,507,958

$934,703

100.00%

100.00%

Top 1%

1,326,116

$1,591,711

$368,132

21.20%

39.38%

above $364,657

Top 5%

6,630,582

$2,683,934

$557,759

35.75%

59.67%

above $145,283

Top 10%

13,261,164

$3,487,010

$657,085

46.44%

70.30%

above $103,912

Top 25%

33,152,909

$5,069,455

$803,772

67.52%

85.99%

above $62,068

Top 50%

66,305,819

$6,544,824

$906,028

87.17%

96.93%

 above $30,881

Bottom 50%

66,305,818

963,134

28,675

12.83%

3.07%

below $30,881

 

 

 

 

 

 

Source: IRS

If you want to break into the top 1% club then you’ll have to aim for $365k per year. But remember, unless a recession happens by the time you get up to that level the threshold for top 1% membership will have risen.

Growing inequality is a boon for federal tax collections because the higher income people are taxed at higher percentage rates. The same dollar earned by a high income person nets the IRS much more in taxes collected than if a lower income person in a low tax bracket earns that dollar. The top 1% alone paid almost 40% of total federal income taxes. This is why such a big chunk of the electorate isn’t strongly opposed to more federal spending. They know they won’t be the ones paying for it.

The table above shows that the top-earning 25 percent of taxpayers (AGI over $62,068) earned 67.5 percent of nation’s income, but they paid more than four out of every five dollars collected by the federal income tax (86 percent). The top 1 percent of taxpayers (AGI over $364,657) earned approximately 21.2 percent of the nation’s income (as defined by AGI), yet paid 39.4 percent of all federal income taxes. That means the top 1 percent of tax returns paid about the same amount of federal individual income taxes as the bottom 95 percent of tax returns.

The IRS data also shows increases in individual incomes across all income groups. Just as the highest earners lost the biggest percentage of their incomes during the recession of 2001, so they have prospered the most as the economy has continued to rebound. In sum, between 2000 and 2005, pre-tax income for the top 1 percent group grew by 19.1 percent. In the same time period, pre-tax income for the bottom 50 percent increased by 15.5 percent.

Will we reach a point where the top 1% are paying half of all income taxes?

 

 

 

 

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