James Pethokoukis

Politics and policy from inside Washington

America’s top 1 percent pay 40 percent of all taxes

July 30, 2009

The Tax Foundation review of new IRS data (through 2007) finds some remarkable things about America’s progressive tax system:

1) The top 1 percent of taxpayers paid 40.4 percent of the total income taxes collected by the federal government — the highest percentage in modern history — while the top 1 percent paid 24.8 percent of the income tax burden.

2) The share of the tax burden borne by the top 1 percent now exceeds the share paid by the bottom 95 percent of taxpayers combined. In 2007, the bottom 95 percent paid 39.4 percent of the income tax burden. This is down from the 58 percent of the total income tax burden they paid twenty years ago.

3) To put this in perspective, the top 1 percent is comprised of just 1.4 million taxpayers and they pay a larger share of the income tax burden now than the bottom 134 million taxpayers combined.

4) Some in Washington say the tax system is still not progressive enough. However, the recent IRS data bolsters the findings of an OECD study released last year showing that the U.S.—not France or Sweden—has the most progressive income tax system among OECD nations. We rely more heavily on the top 10 percent of taxpayers than does any nation and our poor people have the lowest tax burden of those in any nation.

073009taxes

Comments

I think the first bullet point is missing a zero. It says the top one percent pay 40.4% while also paying only 24.8%

 

This is interesting, but the follow-up question is, how much income does the top 1% make compared to the bottom 95%? I don’t see that anywhere in the article. It also bears looking at the 4% left out in these statistics. What about the income/taxes of the population above the bottom 95% but below the top 1%? Does that muddy the waters a bit?

Posted by Gunner | Report as abusive
 

The complete sentence from the link is “By contrast, the top 1 percent paid 24.8 percent of the income tax burden in 1987, the year following the 1986 tax reform act.”

ie:
2007: 1% pays 40.4%
1987: 1% pays 24.8%

Which doesn’t really change the fact that this is more an obvious sign that the rich continue getting richer than some Grover Norquist sob story about how these poor billionaires are doing all the heavy lifting…

Posted by jwer | Report as abusive
 

Ill remember to shed a tear while I wait for my food stamps. Maybe Mr. Pethokoukis could blog about the number of ppl who work full time and yet still live under the poverty line (I know I put in 40+ hours a week and don’t even clear enough to get taxed)

I’m sure most employed/ underemployed US workers would GLADLY pick up there share of the tax burden if the business elite would stop screwing over the US work force and re-import our blue collar jobs

Posted by eron | Report as abusive
 

It would be interesting to see how many of the bottom 95% owe their employment to the top 1%.

Posted by Steven | Report as abusive
 

We “Owe” our employment to the public consumer just like the top 1% “owes” there wealth to our (the USA’s) consumer base.

Posted by boom | Report as abusive
 

I’ve been on both sides of this coin–living off of public support and now part of the top 1%. I can speak and relate to both sides. By any measure, the system is broken and the causes are plentiful. But, no one should begrudge folks that have worked hard, played by the rules and bettered themselves. Doesn’t work out or seem fair for everyone, but there shouldn’t be a penalty for wealth. Don’t confuse this with a proportional shared responsibility. However, that’s not what 1% carrying the burden of our society is. It’s onerous, broken and not sustainable or motivating for those creating wealth today. Not looking for a shoulder to cry on, just calling a spade a spade having seen both deck of cards.

 

How about we forget progressive taxes? Make it an equal percent across the board. You make $20k per year, you give x% to Uncle Sam. You make $20M per year, you still give x% to Uncle Sam. NOBODY should be exempt from paying their part for the tax-funded services they receive (national security, road/bridge repair, etc).

Posted by Casey | Report as abusive
 

It is amazing to me how lower income people justify these numbers. I also am one of the lower income people but my school taught math and this is not good math. Can’t we get rid of income tax, the IRS and go to a national sales tax. That way all pay the same percentage. Rich people pay more numerically because they buy more items and more expensive items. This would also bring into the pool all the underground people whose activities are not currently taxed. I like rich people, I wish I could be one but it seems like we are not trying to motivate people to be rich.

Posted by Steve | Report as abusive
 

Thank you Casey, finally a voice of reason. A flat tax system makes more sense, simplifies the tax code and everyone pays their share.

Posted by Amy | Report as abusive
 

What this post fails to discuss are the realities of:
1) US has the highest income inequality as measured by the Gini coefficient of industrialized countries
2) The top 1%, and more broadly 5%, control a majority of the income and have seen their incomes grow rapidly in the past decade to proportional levels not seen since 1929
3) The 1979-2006 income growth levels are even more stark: top 1% – 256% growth, middle 20% – 21% growth, bottom 20% – 11% growth (inflation adjusted)
4) The median household has actually seen their incomes decline over the past decade in inflation-adjusted terms
5) Over the past decade, business investment has actually run below historical norms, showing the money did not ‘trickle down’ – how could it if there is not a corresponding increase in demand?

Posted by Larry | Report as abusive
 

Articles of this type ALWAYS fail to mention what percentage of the total income the top 1% makes.

Posted by tracy20 | Report as abusive
 

why is the email address being retained in the email window ?

Posted by gem | Report as abusive
 

thanks, jwer.

 

It would be interesting to know the percentage of total income (not taxes) of the economy that the top 1% of taxpayers made, and that made by the rest of us, to compare the ratio. That would give a better idea.

Posted by Michel | Report as abusive
 

I’ve never seen such badly-cooked numbers in all my life. They compare American tax rates with those in other industrialized countries, which is meaningless because they ignore the differences in distribution of wealth. America destroyed its middle class, and now the super-rich people who aquired that wealth are whining because they’re paying a higher percentage of the overall tax burden. Sheesh!

Posted by DLN | Report as abusive
 

?

Posted by R | Report as abusive
 

maybe if there was a flat tax people would care more about how the government is wasting money. the problem is most of the percentage if not all that pay no tax vote for democrats. so, when they start spending and spending and spending mostly on needless programs and pork projects, these people just don’t care because they aren’t paying into it. I think if we had a flat tax we would care more about how the government was spending our money. and trust me, I dont make a lot of money but I do think that everyone should pay their fair share.

Posted by MIKE | Report as abusive
 

The top 1% control 47% of the nation’s wealth. 40% of the taxes. E Pluribus Unum %. E Pluribus Unum PERCENT.

Posted by Andrew | Report as abusive
 

I like the idea of a federal sales tax. Why does the government need to take a piece of my paycheck, just for earning it? Shouldn’t I feed myself first, before the government? Federal sales taxes also addresses the idea of carbon credits as well. The rich consume more than the poor, flying in jets etc. and thereby have larger carbon footprints. Taxing excessive consumption would encourage people to save more money as well. Income tax is just another thing preventing people form building wealth for themselves.

Posted by jcb | Report as abusive
 

A national sales tax will bring the economy to a halt. People will stop their frivilous spending. Black markets will prevail and undermine the whole system. Moreover, low and middle income folks will pay a disproportionate amount of tax. They have to spend a greater proportion of their income just to survive than the rich do. So, if a person earning $100k spends $10k on clothing and other taxable items per year, then sales tax applies to 10% of their income. If a person earning $1,000,000 spends $10k on clothing a year, then only 1% of their income is being taxed. The rich person’s “extra” money never gets taxed, so they carry less of the burden. A national sales tax will make the ultra rich even richer. It will also drive them to make their big purchases elsewhere.

Posted by Thekla Fischer | Report as abusive
 

Another argument in favor of a consumption tax, the Fair Tax. Since the progressive politicians can’t live with that, we’ll get higher income taxes along with a VAT. The VAT is so cool, so European, the poor get taxed without knowing that they’re being taxed and will still vote for the same thieves they’ve always voted for.

Posted by Rex Chadwell | Report as abusive
 

Look, it’s 2 different things:

1) The top 1 percent paid 40.4 percent of the total income taxes collected by the federal government
2) The top 1 percent paid 24.8 percent of the income tax burden.

Posted by Holger Roeser | Report as abusive
 

Onward, you rich exemplars! Earn your piles of money, and pay for all the ungrateful poor!

Posted by Haha | Report as abusive
 

Holger Roeser: It was pointed out earlier that the higher percent is from 2007, the lower from 1987. It was an error caused by only partially quoting the original source.

Thekla Fischer, a sales tax would not bring the economy to a halt. While there would be some secondary markets where the tax is evaded, that would be more than offset by the increased revenue from illegal workers who don’t pay their income taxes. More attention would have to be paid at customs and websites like eBay, but there’s already a system in place for that for people trying to avoid a state sales tax. The extra work could be picked up the by newly unemployed workers from the IRS.

The example of buying 10k worth of clothes for different incomes isn’t reasonable. The richer person will still spend more of their income, if not in a store persoanlly, then in an investment that will move the money to hands that will spend it.

While the poorer half of the country would find itself paying more taxes than it did, most money spent by the poor is on non-taxable items like food anyway.

 

Drewbie just about every point you put forward could be defeated by a freshman with economics 101 under his/her belt.

Please either study up on your own, use some of your wealth to take some college courses after school or get your parents to pony up for good education at a privet high school

Posted by eron | Report as abusive
 

The idea that seems to be eluding people is that tax rates need to be progressive because money in the hand begets more money. The rich are better credit risks thus qualifying for better interest rates, and they can afford to buy things in cash that the poor cannot.

Both of these things make a flat tax unfair; if I have $1M and you have $10K, and we both pay 15%, I still have $850K and you have $8500. The leverage is not comparable. The issue with a sales tax is not that the rich will or will not spend a proportional amount of their money, it is that even if they do (which I don’t believe they do), they still have more leverage at the end of it, particularly if they used no credit or layaway to buy what they bought.

Posted by jwer | Report as abusive
 

eron, you seem to make several assumptions about me based on my opinion. Namely, that I’m poorly educated and rich. I have 2 BAs in Math and Physics, and I make just over $23,000 / year.

If the points are so easy to shoot down, please do so instead of just saying you can.

 

jwer -
If you think money in the hands of the rich stays there, you’re mistaken. While Bush’s wars did run up the deficit, tax revenue actually went up after his tax cuts went through.

 

drewbie -

I never said that, I was just pointing out that interest on hundreds of thousands of dollars is empirically more useful than on thousands.

But your first sentence is also not necessarily related to your second. Who paid more taxes? Not the rich.

Posted by jwer | Report as abusive
 

You said earlier that you don’t believe the rich spend a proportional amount of their income.

The second sentence was related because the money the rich didn’t pay in taxes made it’s way down through investment to the poor / less rich. If taxes went down (for the rich) or stayed the same (for everyone else) and tax revenue was up, then it must be the case that people were making more money.

 

As Mike said, under the present system, everyone should pay Federal income tax, that way everyone is a stakeholder and would pay closer attention to how government spends tax dollars. On the heels of this past week’s “Beer Summit”, we’ll use some suds for different teachable moment. I saw this a year ago, the numbers do not reflect the increases that will apply once the tax cuts expire and will skew the numbers further.

Beer and Taxes.

Ten guys get together every weekend at their favorite bar, and drink beer.

The bar tab always comes out to an even $100.

Normally, everybody would pay $10 and it would be fine, but these guys
decide to model their payments on the U.S. Tax Code.

(The people with the lowest income would pay the least, and the
highest would pay the most.)

So, the first week they did this, the first four guys paid nothing.
The fifth guy paid a buck.
The sixth guy paid $3.
The seventh guy paid $7.
The eighth guy paid $12.
The ninth guy paid $18.
And the richest guy paid 59 dollars…

After becoming regulars at the bar, the bar owner came up and said
that he really liked having them show up every week, and told them
that he was going to give them a 20% cut of the price of beer.

So, since they were modeling their beer tab on the U.S. Tax Code, they
rebalanced the bill that way also.

After the cut, the first four guys still paid nothing.
The fifth guy went from paying a buck to paying nothing.
(A savings of 100% for him.)
The sixth guy went from paying $3, to paying $2.
(A savings of 33% for him.)
The seventh guy went from paying $7 to paying $5.
( A savings of 28%.)
The eighth guy went from paying $12 to paying $9.
( A savings of 25%)
The ninth guy went from paying $18 to paying $14.
( A savings of 22%)
And the richest guy went from paying $59 to paying $49.
( savings of 16%.)

The first four guys said: “We got screwed, we didn’t get any of the tax cut.”

The fifth guy said: “I got screwed too, I only got a buck, and the
richest guy got ten. The system exploits the poor, and the tax cut was
only for the rich.

So the first five guys get the 10th guy out in the parking lot and beat him up.

The next week, the tenth guy is in Macao, and doesn’t pay any taxes at
all, and the other guys get to make up the difference in the bar tab……….

Posted by Siobhan Sack | Report as abusive
 

drewbie- OK, I can see how you got that, but that wasn’t what I said; I said they keep more of their money after purchases that might be taxable by a sales tax, not that they would not then spend anything else. However, what you are suggesting is that they will use that surplus to invest in a way that would “trickle down” which is clearly not true, as the gap between their wealth and everyone else’s continues to grow. This suggests that what they’re actually doing is investing it in stocks and sticking it in other interest-bearing accounts, and are therefore the only ones seeing a significant profit.

As for your second sentence, no, it means that that the income of the rich went up faster than their taxes went down.

Posted by jwer | Report as abusive
 

if the income of the rich went up faster than their taxes went down, then the rich paid more in taxes. That’s the opposite of what you said a couple posts earlier (July 31st, 2009 3:37 pm GMT).

And of course they invest in stocks and interest bearing options. That’s what investments are supposed to be: money bearing. But the while the company they buy stock in has their money, it allows them to grow, which usually translates into pay raises and/or hiring more staff.

 

I am curious to know how much federal income tax ebay.inc pays yearly?

Posted by JJames | Report as abusive
 

Many people have asked here about how much of the total income the top 1% made. The answer is about 65%, so if they are paying only 40%, that’s a pretty good deal.

Posted by Ron | Report as abusive
 

The last post is 30% off. The top 1% controls 95% of the wealth in this country. Why do you think NONE of the reforms spoken about on Wall Street have been instituted?

Posted by Bob | Report as abusive
 

The last post is 45% off. The top 1% owns half the wealth in this country but that is a mute point. Income taxes are bases on INCOME for a specific year. The Estate Tax taxes accumulated wealth after it has been taxed many times in a lifetime. In 2005 the top one percent EARNED 18% of total income and PAID 38% of federal income taxes.

Also, why do we not analyze work habits when we talk about income disparity. Those in higher income brackets have more education, put in more hours at work and watch less television than those in the bottom income brackets. My husband works at least 70 hours a week in a very stressful job and has to travel and be away from his family. He has been doing this for 25 YEARS. He is a first generation college graduate not a trust fund baby. Only 2% of the top 1% are trust fund babies. The rest started out as the average American. You want to be in the top 1%, go for it but you will have to work for it.

Posted by sunseeking | Report as abusive
 

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