Glenn Reynolds started a bit of debate about the progressive tax and justice in the American tax code. Reynolds points to this story from the "Tax Prof Blog."
New data released by the IRS today offers interesting insights into the distributional spread of the federal income tax burden, new analysis by the Tax Foundation shows. The new data shows that the top-earning 25% of taxpayers (AGI over $62,068) earned 67.5% of the nation's income, but they paid more than four out of every five dollars collected by the federal income tax (86%). The top 1% of taxpayers (AGI over $364,657) earned approximately 21.2% of the nation's income (as defined by AGI), yet paid 39.4% of all federal income taxes. That means the top 1% of tax returns paid about the same amount of federal individual income taxes as the bottom 95% of tax returns.
These stats show that the rich pay virtually all of the income tax while the poor and lower middle class pay virtually nothing. But, some argue, this discussion only involves the individual income tax, not all of the federal taxes we pay, such as Social Security tax. See a discussion here.
One can go to this report (pdf alert) from the Congressional Budget Office to get some data. See pages 5-6. It shows that even when one takes into account all federal taxes like Social Security, excise taxes, gas taxes, etc., the poor and middle class get off pretty well. When one looks at the effective tax rate (i.e., the rate actually paid after all adjustments), the poorest 20% of households paid 4.5% of their income to the federal government while the next 20% paid 9.8%. It should be noted that both groups have a negative effective tax rate for the individual income tax. Meanwhile the richest 20% paid 25.1% of their income to the government, with the richest 1% and 5% paying about 30%. Put another way, the poorest 20% account for only .9% of all federal revenue, with the next 20% accounting for 4.5% of all federal revenue. Meanwhile, the richest 20% account for 67.1% of all federal revenue, while the richest 5% and 1% accounted for 41.3% and 25.3% respectively of federal revenue.
There is a question to ask, sure to raise the dander of the populist crowd, whether it is healthy for a free people to have a significant number of citizens, say 40%, who bear virtually no financial responsibility for the upkeep of their government.
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