Paul L. Caron

Friday, July 31, 2009

The Top 1% Pays More Income Tax Than the Bottom 95%

The Tax Foundation's Tax Policy Blog:  Tax Burden of Top 1% Now Exceeds That of Bottom 95%, by Scott A. Hodge:

Newly released data from the IRS clearly debunks the conventional Beltway rhetoric that the "rich" are not paying their fair share of taxes. Indeed, the IRS data shows that in 2007—the most recent data available—the top 1% of taxpayers paid 40.4% of the total income taxes collected by the federal government. This is the highest percentage in modern history. ...

Remarkably, the share of the tax burden borne by the top 1% now exceeds the share paid by the bottom 95% of taxpayers combined. In 2007, the bottom 95 percent paid 39.4% of the income tax burden. This is down from the 58% of the total income tax burden they paid twenty years ago. To put this in perspective, the top 1 percent is comprised of just 1.4 million taxpayers and they pay a larger share of the income tax burden now than the bottom 134 million taxpayers combined.

Tax Foundation Chart

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So the top 1% of taxpayers now pay more federal income taxes than the bottom 95%. That's before they get... [Read More]

Tracked on Jul 31, 2009 5:00:42 AM


I just don't understand what the previous posts refer to in the term "payroll tax", Social Security Tax? It certainly is not individual income tax withholding for federal and state which are already included in the study above since they are pre-payments against the actual tax calculation on an individual tax return. In other words, if someone has income tax withholding and their tax return shows no tax they get that amount refunded of course the opposite is true in the event that someone has under-withheld they will pay more.

Posted by: Clinton | Aug 3, 2009 8:33:31 AM

I'm sorry. .... But why would you be defending that particular top 1%. They paid more tax but didn't they also claim 95% of the income. This is supposed to be an indictment of the thieves and you make it an indictment of Obama and America's tax requirements. I guess I need to read Faux News if I want to see fair and balanced reportiing.

A report released from New York Attorney General Andrew Cuomo sheds light on the big bank practices that have to be reined in: doling out huge bonuses while profits plummeted. According to the Cuomo Report, the nine major banks while taking $175 billion in bailout money, doled out $32 billion in bonuses despite taking net losses of nearly $81 billion.

Posted by: Charles | Jul 31, 2009 8:23:31 PM

If you look at the Tax Foundation's source data files (which they link to on their page), the share of Adjusted Gross Income declared by the top 1% compared with the bottom 95% has increased from a ratio of 17% to 36% over that period. The ratio of taxes paid has gone from 44% to 103%, roughly a 2.5 times increase in tax share compared to a ~2 times increase in income share. The system is still progressive, but not that much more than in the past. Of course, some may feel it was too progressive in the past as well.

I think it is a little unfortunate that the Tax Foundation published the above graph, which looks very dramatic, without mentioning that the graph of income shares would have a very similar pattern.

Posted by: Hmmm | Jul 31, 2009 3:12:31 PM

Gee, what a surprise. I wonder if this correlates to the total amount of pre-tax income accruing to the "top 1%" (here's a hint - it does). See here

Also, not that the Tax Foundation's piece is misleading and disingenuous enough, it also leaves out the effect of the payroll tax. Last time I checked the payroll tax was still a tax.

Posted by: Jeremy | Jul 31, 2009 11:34:17 AM

Not bad considering...

"In the United States at the end of 2001, 10% of the population owned 71% of the wealth, and the top 1% controlled 38%. On the other hand, the bottom 40% owned less than 1% of the nation's wealth." Distribution of Wealth - Wiki Link

Now to be fair, I didn't verify the source, and I shouldn't confuse wealth with current income, but one tends to amass wealth due to the influx of income over time.

Wow 10% owning 70% and 1% owning 39% of all the wealth in our nation. Tax that 1% at whatever you want and there is a good chance the 1% will bear most of the burden, especially since Bush took many of the lower income people off of the tax rolls.

One can only imagine the catastrophic result if the top 1% had to pay more than 15% on their capital gain earnings. The only solution, obviously, is a 0% rate! That should reduce their burden and really drive up their wealth rate.

Alternatively, since wealth tends to drive income at the higher end of the income spectrum via investments (capital gains), confiscation of that wealth will reduce current income. This would reduce the 1%'s share of taxes paid to make it more equitable for the 1%. Maybe then they'd feel not as burdened by taxation.

Posted by: Bumpus | Jul 31, 2009 8:11:52 AM

Interesting, but extremely misleading.

The Tax Foundation press release leaves out about half the federal tax burden - most importantly payroll taxes, which are paid by all wage earners. I expect they aren't included here because that would reverse the story.

Payroll taxes raise about as much money as the personal income tax and they completely change the picture. For example, in a year 2000 study, the staff of the Joint Committee on Taxation estimated that those in the top 1% would pay 33.6% of federal income taxes. If all federal taxes are considered, their share of the federal tax burden drops to 18.6%. And that study was done BEFORE the phase-in of the Bush 2001 tax cuts which cut top rates and capital gains.

So, the top 1% pay 18.6% of all federal taxes. Is that disproportionate? Well, no. Their share of income has been been hovering at around 20% for the past decade - arguably, it's still quite a bit lower than it should be.

Articles like the one reproduced here are simply a lawyer's brief for one side. If you're going to reproduce them, you really should try to balance them out.

Posted by: Sophomore | Jul 31, 2009 6:41:38 AM

maybe before we get all heated up about this we ought to also consider that the top 1% took home 23% of all adjusted gross income in 2007, per the same IRS stats.

Posted by: openmouthedfool | Jul 31, 2009 6:06:25 AM

That is a great chart...i love the way you can clearly see the rise and fall easily for both categories. My job at Project America is just that, to display historical political issue information that is clear to everyone. Here is what I wrote on the matter of tax percentages:

The information is from the Department of the Treasury.

link to the chart: there is more there than just that chart have a look around the tax catagory.

In 2005, the top 5% of taxpayers paid more than one-half (59.7%) of all individual income taxes, but reported about one-third (35.7%) of income. Also, the top 1% of taxpayers paid 39.4% of all individual income taxes. Since 1990 this group’s tax share has grown faster than their income share. Taxpayers who rank in the top 50% of taxpayers by income pay nearly all individual income taxes. In all years since 1990, taxpayers in this group have paid over 90% of all individual income taxes. The bottom 50% however, have a reversal of fortune in that they have more income share at 12.83% than income tax share which has remain relativly steady at 3.07%.


Posted by: Lacey | Jul 31, 2009 5:37:50 AM

This graph should be renamed "Change in the distribution of income since 1986"

Posted by: eastcoast | Jul 31, 2009 5:37:34 AM