Tuesday, September 26, 2006
JEC Releases Top Half of Taxpayers Pay Highest Tax Share in Decades
The Joint Economic Committee has released Top Half of Taxpayers Pay Highest Tax Share in Decades -- New IRS Data Released:
The share of income taxes paid by the top half of taxpayers reached its highest level in decades, according to new IRS data released today [blogged here]. According to the new data, the top half of taxpayers ranked by income paid 96.70 percent of the individual income taxes paid in 2004, compared to 86.05 percent in 1949, 89.35 percent in 1959, and 90.27 percent in 1969.
https://taxprof.typepad.com/taxprof_blog/2006/09/jec_releases_to.html
Comments
Yes - FICA needs to be counted - and completely, including the theoretical "employer's share" - to be a true accounting. That would ground the minimum true tax at 15.7%, starting with the first dollar in wage/SE income.
Oh, there are way many factors why that wouldn't be true. For example, refundable credits on the income tax could wipe out your FICA liability. Or technical factors, such as the fact that when you rightly count in the employer's share of Social Security tax, you also need to count that into the employee's income. So really it's not $15.70/$100 = 15.7%, it's $15.70/$107.85 = 14.6%. That's not a very big effect, but it's a good example of how determining effective tax rates is a lot more complicated than just looking at the brackets.
Posted by: Noumenon | Sep 28, 2006 6:44:51 AM
The top 1% OWNS one third of the country:
"In the United States, wealth is highly concentrated in a relatively few hands. As of 2001, the top 1% of households (the upper class) owned 33.4% of all privately held wealth..."
from here:
http://sociology.ucsc.edu/whorulesamerica/power/wealth.html
Posted by: Keith Scott | Sep 27, 2006 3:10:26 PM
Separating FICA makes the discussion bogus. Someone who's making 25K/year pays far more in FICA than in income taxes - especially if the "employer's share" is counted - and definitely percieves themselves as "paying taxes". Narrowing the argument to income taxes is disingenuous and not helpful to understanding the total tax burden.
For higher income earners, FICA essentially becomes a head or poll tax, although Medicare keeps going...
Posted by: Foobarista | Sep 27, 2006 11:02:52 AM
The chart plainly refers to "personal income tax", and is accurate as to that category, though somewhat meaningless without reference to share of personal income for the same groups.
The chart including all income and all taxes is also informative and useful.
Personal income taxes go into the general treasury. FICA taxes, at least theoretically, go into the so-called Social Security (and Medicare) Trust Fund (remember Al Gore's "lock box?) Social Security as sold by its New Deal proponents is social insurance, and specifically was not supposed to be redistributive of income. Therefore it should not be subjected to any sort of "progressivity" analysis of federal taxes.
FICA is an insurance premium. If you live to 65, the policy starts to pay off. If you die young, it doesn't. If we shift the discussion about FICA into the context of progressivity, then we are implicitly transforming the premise of Social Security to make it an income redistribution program. That's an important policy shift and it needs to be acknowledged.
Posted by: Brezh | Sep 27, 2006 8:47:54 AM
There's a good reason to consider FICA separately. The top 2% may earn an income above the threshold where one pays FICA taxes, but they're not receiving Social Security benefits for the income above that threshold either.
Posted by: Greg | Sep 27, 2006 5:18:36 AM
Yes - FICA needs to be counted - and completely, including the theoretical "employer's share" - to be a true accounting. That would ground the minimum true tax at 15.7%, starting with the first dollar in wage/SE income.
Posted by: Foobarista | Sep 27, 2006 12:07:19 AM
however isn't this data highly skewed by excluding FICA taxes?
In a different analysis (link) in 2001, the CBO did its best to factor in all federal taxes (corporate, excise) and all income (401(k) matching, food stamps). This is how I summarize the results:
The top 1% earns 14.5% of the income and pays 23% of federal taxes.
The top 10% earns 37.5% of the income and pays 50% of federal taxes.
The top quintile earns 52% of the income and pays 66% of federal taxes.
The bottom 50% earns 11-12% of the income and pays 7-8% of federal taxes.
So that wasn't very skewed. I would say the main skew in the results arises from reporting the share of taxes paid without the context of the share of income earned.
Posted by: Noumenon | Sep 26, 2006 9:03:24 PM
Craig,
From TaxFoundation.org:
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The top-earning 25 percent of taxpayers (AGI over $60,041) earned 66.1 percent of nation’s income, but they paid more than four out of every five dollars collected by the federal income tax (84.9 percent). The top 1 percent of taxpayers (AGI over $328,049) earned approximately 19 percent of the nation’s income (as defined by AGI), yet paid 36.9 percent of all federal income taxes.
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Posted by: Steve | Sep 26, 2006 7:11:25 PM
Bill,
With the top 50% paying 96.7%, that leaves the bottom 50% paying 3.3%.
Concerning "this BS" not paying income taxes, that is an accurate generalization of the group. As with all generalizations, it does not mean there aren't individuals within the group who are exceptions. It does not mean that each tax return for those in the bottom 50% showed a 3.3% rate.
Group. Not individuals.
Posted by: Steve | Sep 26, 2006 7:09:18 PM
The lower earners pay around 10% in Federal Income tax on earnings if they don't itemize.
No mortgage no kids and you are paying as much or more than some of the "rich".
I always hate this BS about the lower 50% not paying taxes.
Posted by: Bill | Sep 26, 2006 5:16:29 PM
No it just means that the changes in tax code have dropped the bottom 50% of income earners off the income taxpayer rolls.
If it was tax changes that increased the top half's income tax share, that would mean that the tax cut lowered tax rate on the bottom 50% more than on the top 50%. That would not be the consequence you would expect from the design of the tax cuts.
Posted by: Noumenon | Sep 26, 2006 2:17:58 PM
However, there is no corresponding increase in the total income tax share to the decrease in average tax rate.
Well normally, there would be a corresponding decrease when the tax rate decreased, right? So just for it to remain flat represents an increase.
Posted by: Noumenon | Sep 26, 2006 2:14:05 PM
I am a conservative and I am in the top tax bracket which I honestly think should not exceed 33%; however isn't this data highly skewed by excluding FICA taxes?
Posted by: Larry | Sep 26, 2006 1:32:23 PM
Craig,
I'm not an economist, to be sure, but I checked out the post you mentioned. I have one question: The total income share from 1985 - 2004 seems to be a fairly consistent increase, i.e. a relatively straight line. Even when the average tax rate declined, the total income share seems to remain fairly consistent. Your contention is that the only way the burden of their (top 50%)share of income taxes would increase disproportionately is if their share of income increased disproportionately. However, there is no corresponding increase in the total income tax share to the decrease in average tax rate. If your assertion is correct, wouldn't there be a decidedly upward trend in total income share as the tax rate decreases? Or am I missing something?
Posted by: Shawn | Sep 26, 2006 12:13:24 PM
No it just means that the changes in tax code have dropped the bottom 50% of income earners off the income taxpayer rolls.
Posted by: Kevin | Sep 26, 2006 11:50:55 AM
Can't those whose income is around $30K also qualify for bennies like the EITC, Section 8, food stamps, etc.. depending on the family make up and circumstances?
Posted by: Sandy P | Sep 26, 2006 7:51:23 AM
...which means the top 50% is earning a greater share of income. Take a gander at my post on OMB Watch's Budget Blog - http://www.ombwatch.org/article/blogs/entry/2318/3
Posted by: Craig Jennings | Sep 26, 2006 6:34:27 AM
Example Family of 4 with 2 workers equal income combined income 81000 what are total percentile taxes including fica .
Example 2 family of 4 with 2 workers equal income combined income 25 million dollars what are total percentile taxes including fica. That should give an indication.
Posted by: Jsmith | Oct 8, 2007 10:54:44 PM