Foundation

Taxpayer's Tab: Who Pays Income Taxes?

by Demian Brady, Michael Tasselmyer, Timothy Howland / /

From the President, Members of the House and Senate, and other advocates for bigger government, there’s been a lot of flap about the fairness of our tax system, that the so-called “rich” are not paying their “fair share” in taxes. However, a look at the actual tax stats undercuts this argument, or at least raises questions about how they define “fair” in their efforts to stoke class resentment.

The IRS figures for Fiscal Year 2012 (the most recent set of data available) show that the richest Americans bear a disproportionate share of the federal income tax, and over the past several decades, they’ve taken on an increasingly larger share of the burden. In fact, the wealthiest one percent's share of taxes paid is nearly twice as much as their AGI load.
 
Percentage of Federal Personal Income Tax Paid

The richest 1 percent of income earners in the U.S. paid 38 percent of all income taxes and the top tenth had to bear 70 percent. The levels for these income groups are approaching the high burden levels seen before the housing-bubble crisis of 2008 that sent the economy into recession. One-quarter of all income earners were responsible for 86 percent of all taxes and the upper half accounted for nearly the entire burden at over 97 percent. What’s left? The bottom half of all earners contributed less than 3 percent.

Since 2001, one of the most popular features on the NTUF website has been “Who Pays Income Taxes?” The page contains a series of charts that has tracked the distribution of the federal income tax burden over time. These snapshots continue to depict two common-sense trends: when people are allowed to keep more of their own money, they prosper, and once prosperous, they pay a bigger part of the bill for those who aren’t.

We have updated our webpage with the latest income tax statistics. Keen observers may notice that for some years, the data set is slightly different than what we had previously posted. This is because the IRS revised the methodology it uses to track this information. The exact figures may have changed, but the general trends and underlying story told by the data remains the same: those who do well and move up the income ladder pay an increasing share of all income taxes.

We have also dug through historical IRS documents to backfill the data to 1980 (figures prior to 1991 were not updated by the IRS under its revised methodology). Table 1 below features the percentage of taxes paid by income percentiles from 2007 to 2012, and snapshots of historical data (a full table is available at ntu.org). 
 

Since 1980, the tax burden has shifted significantly upward. Then, the top 10 percent were paying just under half of income taxes and the share of the top 1 percent comprised 19 percent. The load on lower half of all earners was eased by over half from 7 percent to less than 3 percent. Moreover, in 2013, over 43 percent of all households had zero income tax liability. Those in this income group are indeed hit harder for payroll taxes (to fund entitlement programs) and for excise taxes (on gasoline, tobacco, and air travel, for example), but these factors do not alter the overall distribution of the tax burden. The Congressional Budget Office examined the overall level of federal taxation and determined that the lowest fifth of income earners paid a 4.3 percent effective tax in 2005 compared to the 31.2 percent rate for the top 1 percent.

This is not to say that those in the lower income brackets should be paying more in taxes. A fair tax system eases the burden on those struggling to make ends meet and earn their way up the economic ladder. Along with “fair share” political blather come promises of a new “middle class economics” program to further increase taxes on the “rich” to fund new spending programs (as well “tax cuts” that would actually be realized as outlays, spending) for those down the ladder.

But those advocating for even higher taxes and therefore higher burdens on the wealthy – and it must be noted that the IRS’s cutoff to be included among the top quarter of all earners is $73,354 – should explain how much higher of a burden would be “fair” and exactly which income groups they consider “wealthy."

With your help, NTU Foundation can continue to track federal tax trends and hold your elected officials accountable. Make a tax-deductible donation by clicking the link below.

 

National Taxpayers Union Foundation is a nonpartisan research and educational organization dedicated to helping Americans of all ages understand how taxes, government spending, and regulations affect them. Through our timely information, analysis, and commentary, we’re empowering citizens to engage in important policy debates and hold officials accountable.

Our findings are provided for educational purposes only and are not intended to aid or hinder the passage of legislation or as a comment on any Member’s or Candidate's fitness to serve. Photo Credits: Wiki Commons


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