Politicians and pundits often claim the wealthy are not paying their "fair share" of income taxes. While this assertion is generally followed by calls to raise taxes, supporters of this position rarely specify what rate they think would be fair. Nor do they acknowledge the current distribution of the tax burden. NTUF's review of the IRS's figures for Tax Year 2014 (the latest available) find the top income earners are paying a share of personal income tax that is at a near historical high.
The top 1 percent of earners pay 39.5 percent of all income taxes, up from last year, and second only to 2007's 39.8 share. The amount of taxes paid in this percentile nearly double their Adjusted Gross Income load. The top tenth of earners paid over 70 percent of all taxes -- the highest level in our data, spanning back to 1980. And as we’ve reported over the last several years, the top half of all files bear over 97 percent of all income taxes.
The income tax burden share is an important issue that impacts the discussions surrounding tax reform. Advocates for lower across-the-board level of taxes are criticized because the benefits will naturally go to those who are currently paying the bulk of income taxes. Some have offered alternative "middle-class" tax cuts, but do not point out that these plans often rely heavily on "refundable" credits that can be claimed by filers regardless of their income tax liability. Like regular tax credits, refundable credits reduce the amount that a taxpayer owes, but any remaining credit dollars are paid to the eligible filer. In FY 2016, refundable credits resulted in spending through the Tax Code of over $126 billion.
A responsible tax system eases the burden on those at the bottom striving to work their way up. But, it also should be careful that the marginal rates at the higher levels do not provide disincentives to greater earnings and productivity, which are a boon for the larger economy. This is another concern that the "fair share" movement fails to address.
For more information, an infographic of Who Pays Taxes 2014 and historical data is available here.