Wednesday, October 26, 2011
The U.S. tax debate tends to focus on the top 1% — their share of income taxes and their tax rates. ... Problem is, the top 1% is a very misleading measure of who pays federal income taxes. It mixes doctors and billionaires, masking the taxes paid by the middle class and the affluent.
Everyone seems to know that about half of Americans paid no income taxes in 2009 and that the top 1% paid about 37% of the income taxes. But how many people know that households making make less than $75,000 collectively paid more federal income tax than those making $1 million or more? ... The fact is that the government relies far more on the bottom 99 percent than the top 1 percent for federal income taxes.
A much better measure than the top 1% would be the top tenth of 1%. The government does not break out this group, but Emmanuel Saez, a University of California economist, and others have. The Saez analysis of tax return data shows that through 2008, the top one-in-a-thousand taxpayers had average income in recent years that ranged between $5.2 million and $7.5 million annually. ... Furthermore, inside the top 1%, those with the highest incomes pay the lowest tax rates.
The top 1 percent paid an average income tax rate of 24% ... The top 400 taxpayers paid a much lower rate. On an average income of $270 million each, their effective federal income tax rate was 18.1%. In a country with more than 300 million people, 400 taxpayers is a minute number. Yet those 400 made 1.3 cents out of every dollar of the country’s total adjusted gross income, almost doubling their share of national income since 2002.
Continuing to focus on the top 1% will mislead us about who pays federal income taxes. That focus should be on the middle class and the upper middle class, and then on the top tenth of 1%. And on whether our tax system is helping create wealth and jobs or destroying them.