Top 1% Pay More (Income) Taxes Than Bottom 95%
A chart from Scott Hodge of the Tax Foundation, titled “Tax Burden of Top 1% Now Exceeds That of Bottom 95%,” is making the rounds:
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 percent of taxpayers paid 40.4 percent of the total income taxes collected by the federal government. This is the highest percentage in modern history. By contrast, the top 1 percent paid 24.8 percent of the income tax burden in 1987, the year following the 1986 tax reform act.
Remarkably, the share of the tax burden borne by the top 1 percent now exceeds the share paid by the bottom 95 percent of taxpayers combined. In 2007, the bottom 95 percent paid 39.4 percent of the income tax burden. This is down from the 58 percent 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.
Some in Washington say the tax system is still not progressive enough. However, the recent IRS data bolsters the findings of an OECD study released last year showing that the U.S.—not France or Sweden—has the most progressive income tax system among OECD nations. We rely more heavily on the top 10 percent of taxpayers than does any nation and our poor people have the lowest tax burden of those in any nation.
Paul Caron passes it along without comment but a more accurate title: “The Top 1% Pays More Income Tax Than the Bottom 95%.” Catherine Rampell notes that “This represents the second year in a row that the richest 1 percent paid more in federal income taxes than the bottom 95 percent (not, however, the bottom 99 percent)” and provides more charts.
Andrew Gelman observes,
It’s an interesting question what to make of this sort of statistic: the income distribution is more skewed than it used to be, so there are some super-rich people paying a lot of taxes. But what I wanted to focus on here was the shift from “income taxes” to “the tax burden.” This could be misleading.
He doesn’t elaborate. Presumably, though, he’s referring to the fact that there are other taxes aside from Federal income taxes. Most notably, there’s FICA (aka, “the payroll tax” or “the Social Security tax”), state and local income taxes, and various sales and excise taxes. (Of course, factoring corporate income taxes in would be useful, too. For that matter, so would the cost of various unfunded mandates on business owners.)
FICA is most often cited in these discussions for two reasons. First, as MSNBC’s Tom Curry points out, “for more than four out of five tax filers, employment taxes are a bigger burden than income taxes.” Second, it is capped at $106,800. That is, workers pay 7.65% of their income into the system (6.2% for Social Security and 1.45% for Medicare) up to the cap, at which point no more is collected. So, someone earning $106,800 and someone earning $1,068,000,000 will pay the identical amount into FICA.
This isn’t regressive in the traditional sense because benefits are capped at $2323 a month regardless of how much one pays into the system. Still, throwing it into the mix changes the ratios considerably and calculating a “tax burden” while excluding mention of other taxes borders on dishonest. But not as much as progressives would have you believe.
As Bruce Bartlett noted two years ago,”Looking at all federal taxes, including payroll taxes, those in the lowest quintile paid 4.5 percent of their income to the federal government in 2004, the second quintile paid 10 percent, the third paid 13.9 percent, the fourth paid 17.2 percent, and the top quintile paid 25.1 percent.” Curry provides this chart, which includes both income and payroll taxes:
What’s interesting is that, even with FICA factored in, the percentage of the federal tax burden falling on the upper quintiles has grown over the last thirty years. Then again, so has the disparity in income. Regardless, however, the top twenty percent pays more than two-thirds of federal income and payroll taxes whereas the bottom forty percent pays essentially nothing.