Wednesday, November 28, 2012
[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.