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Wednesday, November 28, 2012

Progressive Tax Rates Peak at $2 Million Income

CNBC, The Millionaires Who Pay the Highest Tax Rate:

[N]ationally, the tax code is still broadly progressive. The more your make, the more taxes you pay as a percentage of your income. According to new data from the IRS, people who make $1 million or more had an average tax rate of 20.4% in 2010. Tax filers who earned $30,000 to $50,000 paid an average rate of 4.8%, while those who made between $50,000 and $100,000 paid 7.7%. Those making under $30,000 had a negative effective rate, meaning they paid no federal income taxes after deductions and credits. Put another way, millionaires pay a rate that’s more than four times that of the middle class.

One caveat: Rates go up as income goes up — but only to a point. Once you hit a certain magic number among super-high earners, your tax rates start to fall slightly. According to the IRS, average tax rates increase as income increases — until you get to around $1.5 million in annual income. Once you make $2 million, average tax rates start to decrease. The average tax rate peaks at 25.1% for those making between $1.5 million and $2 million.

After that it starts to go down, and falls to 20.7% for those making $10 million or more. So the millionaires who pay the highest average tax rates in America are those who make between $1.5 million and $2 million. That $2 million could be called the “Top Turning Point” on the income ladder, where rates reverse.

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Comments

Only if you ignore payroll taxes, property taxes, state income and local income taxes, and sales taxes.

Factor that in, and the peak tax rate is much lower and there's barely any progressivity.

Posted by: Anon | Nov 28, 2012 12:36:03 PM

Anon, you missed the point. This from the article summarizes it.

So the millionaires who pay the highest average tax rates in America are those who make between $1.5 million and $2 million. That $2 million could be called the “Top Turning Point” on the income ladder, where rates reverse. (Related: Where the 1 Percent Live)

The reasons for this aren’t complicated. Once you get above $2 million, your share of income from investments increases. Investments are generally taxed at the 15 percent capital-gains rate, compared with the top ordinary-income rate of 35 percent.

Posted by: Woody | Nov 28, 2012 5:10:49 PM

Anon

You need to move to Florida or Texas to avoid state income taxes or move to Alaska where the oil companies pay you to live there....that way your total tax paid is much lower.....Don't mix up state and local taxes with Federal taxes....state and local taxes can be avoided by moving or by finding the state with the lowest taxes...Fed taxes you cannot avoid.

Posted by: Sid | Nov 28, 2012 5:42:42 PM

If actually paying 14% is a fair tax load for the very wealthy. Why not make a flat tax of 14% for everybody with absolutely no "outs". For example, if you donate to charity you do so strictly out of charity.

Posted by: Ron | Dec 2, 2012 9:10:08 AM