TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Monday, March 2, 2015

Joint Tax Committee: The Top 1% Receives 19% Of All Income, Pays 49% Of All Income Taxes

Joint Tax CommitteeThe Joint Committee on Taxation has released Fairness and Tax Policy (JCX-48-15):

The Senate Committee on Finance has scheduled a public hearing on March 3, 2015, titled “Fairness in Taxation.” This document ... describes concepts of tax equity and provides data related to the current and historical distribution of income and taxes. ...

For 2015, the top 10 percent (in terms of income) of all tax returns receive 45 percent of all income and pay 82 percent of all income taxes. The top five percent of all tax returns receive 34 percent of all income and pay 71 percent of all income taxes. The top one percent of all tax returns receives 19 percent of all income and pay 49 percent of all income taxes. 

Table 4, below, shows the projected distribution of income and taxes by income category for 2015 tax returns. For example, tax returns with $30,000 to $40,000 of income constitute 9.8 percent of all returns, 4.4 percent of all income, 1.8 percent of total taxes, -0.8 percent of individual income taxes, and 4.6 percent of social insurance taxes. Similarly, tax returns with $100,000 to $200,000 of income constitute 15.2 percent of all returns, 26.7 percent of all income, 20.2 percent of total taxes, 23.6 percent of individual income taxes, and 33.7 percent of social insurance taxes.

Table 4 also shows average tax rates by income category for the individual income tax, social insurance taxes, and for total taxes (including the individual income tax, social insurance taxes and excise taxes, and the corporate income tax). Note that the average tax rate reported here is the tax collected by the relevant tax, divided by total income (not only income subject to the relevant tax). The average tax rate for social insurance taxes is similar across most tax returns, ranging between 7.3 and 10.2 percent for tax returns with income below $500,000, with substantially lower average rates for those with income above $500,000. In contrast, the average tax rate under the income tax varies widely, from a negative 11.0 percent to 27.4 percent, reflecting the existence of refundable tax credits and progressive statutory rates of tax.


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In reading these numbers, it should be kept in mind that only recognized income is counted. Bill Gates, therefore, does not necessarily count as wealthy for these purposes. Nor, indeed, do most other billionaires.

Posted by: Theodore Seto | Mar 2, 2015 4:15:14 PM

And additionally keep in mind that they've already paid taxes on their income.

People seem to think these people have this money laying around in piles, never having paid taxes on any of it.

The "wealth" that's often referred to is locked in the stock market, and will then be taxed when it it sold, just as it is for everyone else.

Posted by: Dean Johnston | Mar 3, 2015 9:45:26 AM

@Theodore Seto

We tax *income*, not wealth.

Taxing wealth is a real can of worms. It provokes capital flight for one bad consequence.

Posted by: Bob | Mar 3, 2015 10:22:26 AM

Yeah, well the 1% must have cheated somebody to accumulate all that wealth. Just ask Karl Marx and President Obama.

Posted by: PD Quig | Mar 3, 2015 11:16:50 AM

Let's say I start a country with two people. I earn $50k a year and pay 100% tax. The other guy earns $5 million a year and pays 10% tax. Whaddayaknow, the top 1% pay 99% of all taxes and the rest only pay 1%.

Overused BS statistic

Posted by: Fred Garvin | Mar 3, 2015 11:34:21 AM

@Fred - double check your numbers. I get 9 and 91% tax levels - and you're missing the point with is the higher end folks pay a higher % of income tax than they earn in income - your example would do just the opposite.

Posted by: cheesetrader | Mar 3, 2015 12:41:03 PM

Fred's math is kind of funky. A country comprising two people cannot have a top 1%. But his point would be fair nonetheless if it were not grounded in a hypothetical that bears no relation to reality.

Posted by: Mike Petrik | Mar 3, 2015 1:26:06 PM

overused BS statistic except it isn't.
your scenario doesn't happen and that isn't what the data is saying. It is saying that based upon the total revenue earned among the citizens the people in the top 1% only earn 19% of the total gross revenue. They then pay with that tax 49% of the nations taxes.
Making it simple using $100 dollars as the totalled earned by the population and that the average tax rate comes out to 20%. that means the total population income has now paid 20%.
That's twenty dollars. lets round that 49% up to 50% for simplicity's sake. That means that the top earners pay 10 of those dollars and while the other 10 dollars is distributed among the other 99% of the taxpaying public.
Its not a BS statistic. Its a meaningful statistic that indicates that our rich are the ones that fund roughly 50% of the government.

Posted by: kzintius | Mar 3, 2015 2:53:06 PM

in addition they earned 19 of the 100 dollars and spent 10 of theirs paying taxes.

Posted by: kzintius | Mar 3, 2015 2:55:04 PM

Male Prostitute, Yes you're right it's BS because your example is ludicrous. Fact is the wealthy bear the brunt of paying for the government.

Posted by: Henry Gomez | Mar 3, 2015 3:30:45 PM

In Fred's example, the rich guy earns 99% of the income and pays 91% of the tax, revealing a regressive tax system. Thus, if it was properly framed in the same manner as this blog post has framed the issue it would still reveal an unfair tax system against the less well off guy. Poorly considered post.

Posted by: Colin | Mar 3, 2015 3:39:29 PM

Fred- You're a liberal math teacher, correct?

Posted by: jl | Mar 3, 2015 3:52:58 PM

According to these numbers the 1% who make over a million a year pay an average tax rate of 33% - really ??? Most millionaires make the majority of their money on capital gains which is clearly NOT included in these income totals. Including ALL income sources would show a much more accurate level of tax burden. But then again, these figures are clearly meant to slant the discussion a certain way.

Posted by: Earl | Mar 4, 2015 1:21:41 PM

Just one note. After looking at the report, keep in mind: "the 49%" is only federal income taxes" Other taxes, state , property, gas, sales, etc etc , are all regressive taxes. Also long term capital gains are divided in half for federal income taxes purposes. Many wealthy follow tax schemes (legal) to take their income as capital gains, basically cutting their true income in half.
Whats the saying, there are lies, damned lies, and statistics.

Posted by: KN | Mar 6, 2015 12:27:29 AM