Some fascinating tax data from Vincent Farrell of Soleil Securities:

Top 1%
If you are lucky or hard-working enough to have earned $364,657 in 2006, the last year for which data is fully available, you are in the top 1% of earners.

That group earned 22% of all income and paid 40.4% of all taxes levied on individuals.

The top 1% paid almost as much as the lower 95%! The percent of taxes paid by the top 1% has increased from 19% of all tax to the current 40% over the last 25 years.

Top 5%
$145,283 in earnings landed you in the top 5% of earners, and the top 5% paid 60% of all taxes.

Top 10%
$103,912 was needed to qualify for the top 10%, and that group paid 70% of all taxes.

Top 25%
The top 25% of incomes (over $62,066) paid 86% of taxes.

Non Tax Payers
It’s estimated that, in 2009, well over 40% of American earners will pay no Federal tax.

Category: BP Cafe, Taxes and Policy

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

26 Responses to “Tax Facts”

  1. steveplace says:

    The non-taxpayers is slightly misleading. You still put in payroll/SS taxes, and although you do get that back in a tax refund, it’s still a risk-free loan to the gov’t and some opportunity cost is lost.

    Remember, the best way to win is on a technicality.

  2. ByteMe says:

    Be more curious to know the actual tax rate each group pays — not the published rate, but the “income divided by actual tax” rate.

    I’m wondering if this is like the fake stat that says we have the second-highest corporate tax rate in the world… and then we find out that no company actually pays that rate once they back out all the deductions built into the system.

  3. Smokey says:

    It’s not even slightly misleading, it’s an outright lie. Payroll taxes are Federal taxes.

  4. Brendan says:

    Ah the cost of living in a civilized society. I’m so sick of this meme. The top 1% can go get an AK-47 and go be in the top 1% in Sudan if they don’t desire to pay such a high share of their income in taxes. Everyone in that top 1% got there off the backs of people under them and who came before them. 1%ers wouldn’t be where they are at today without the progressive tax system because the U.S. would still be a third world country. They should be glad they’re only paying 40% and don’t have their heads in a baskets under guillotines… history shows that’s what happens when incomes become too widely dispersed and the rich don’t contribute their fair share (which is not an even share). Or, if they all think they can start a society somewhere else where they can not pay at least 40% of their earnings in taxes and still have a standard of living anywhere close to what they have now, they can all go for it… good luck on that. To all the top tax bracket whiners: STFU! Flat taxes only work on flat worlds.

  5. bhupi says:

    If this is the same Vince Farrell that is on CNBC then Pa-lease. The data has to be bad. I don’t believe it. The rich always find ways to avoid paying taxes.

  6. GlennF says:

    Using percentiles and percentages to point out that higher earners pay a bigger percentage of the overall tax bill is ridiculous. The reason the 99th percentile of earnings pays more tax today than 25 years ago is because of the ways in which the 99th percentile now earns disproportionately more money. The gap in earning among employees at a single company is one example, but there are also many more ways for people to earn much more money. Hedge funds, for instance, until a few months ago.

    What’s actually more interesting and fair, assuming Americans are fair instead of me-first, screw-you types (which some of us, alas, are) is to look at the distribution of taxes paid as a percentage of earnings and a distribution of retained earnings relative to the poverty line and to a liveable wage. Also, relating earnings, taxable income, and bankruptcy filings would be useful.

    Simply stating that the 99th percentile pays 40 percent of the taxes is like saying that bigger lions produce more poop than the gazelles on which they feed.

  7. hegstrom says:

    I’ve heard variations on these numbers for years … all variations are/were very similar.

    For the Top 1/5/10/25% it is a defined income bracket, it’s easy to pin point specifics

    However, my curiosity has always been centered around the 40+% that don’t pay. I have ‘assumed’ that the 40% represents the lowest income earners … that may not be accurate.

    Do you have the statistics to break out that 40+% of income earners that don’t pay taxes … into tax brackets?

  8. carmen101 says:

    I agree that using average tax rates gives you a better idea of whether something is out of whack. And it doesn’t look that way to me. It confirms the tax code is not regressive, and eliminates the common misinterpretation that if you are in the top 1% you pay 40% in federal income taxes.

    The average tax rates as published by the IRS are:

    top 1% 23.81%
    top 5% 21.24%
    top 10% 19.25%
    top 25% 16.20%
    top 50% 14.15%

    For income the IRS uses adjusted gross income. Total income tax used in the above calculations is income tax after credits (includes alternative minimum tax) reported on returns that showed a positive amount for adjusted gross income.

  9. john haskell says:

    @ Brendan- thanks for dropping the mask and spelling it out for us – “pay up or get the guillotine!”

    the former Soviet republics that have adopted flat taxes have boomed in the past decade. Oh yes, and there’s that poverty pocket Hong Kong with their intolerable 13% flat tax.

  10. Smokey says:

    john,

    Is it then safe to assume that you actively advocate making Federal payroll taxes flat instead of regressive?

  11. a guy called john says:

    x% of “all income”

    I keep seeing these numbers and can’t figure out whether “income” includes capital gains. Can anyone clarify?

  12. jstiles@ideaus.com says:

    this is the same Vince Farrell who was totally confident on CNBC about buying the Financials way above current levels, fact is you were dead wrong in a very big way. Most would be stopped out on your folly. The problem with your denial of the severity of the problem all along must be related to your apparent ideology that frets about the overtaxation of the top income group.

  13. Brendan says:

    @ john, I’m not saying I’m giving anyone the proverbial guillotine, I’m just saying that if I’m fortunate enough to find myself in the top 1%, I’ll be really happy to pay 40%, because history is destined to repeat itself, and I should be paying 80%, but if I can get away with 40% and not have to worry about by personal safety, I’m doing good. These things don’t stand the test of time. What good is all that money if you have to spend your life in a bullet proof bubble?

    As for those Soviets, that’s a great example proving my point. Intense corruption fueled by wealth disparity is threatening to result in civil war. I would not use Russia as an example of success unless they can prove they’ll survive another 30 years with the policies they have in place right now. Right now, they’ll be lucky to last another 3. They’re overproducing their oil wells in a money-grab, they’re invading other sovereign countries, and there’s civil unrest. That place is a ticking time-bomb. The people are not happy and the elite, if they’re smart, should be scared. I just don’t see how all that money flowing to the top can be sustained either politically, or physically, in the case of their energy needs. On top of that, much of the reason Russia finds itself in its current situation is because of Communist infrastructure built prior to the last decade. It’s hardly a stunning example of flat taxes working in the long run.

    Hong Kong, on the other hand, is a service sector economy which has a high cost of living, so what you’re not paying for in taxes, you’re paying for it elsewhere. It does not provide it’s own national defense and is reliant on other nations to provide basic necessities like food. You’re comparing apples to oranges if you think the US can look like Hong Kong. Perhaps Manhattan could, but unless you’re proposing for Manhattan to secede from the US, that’s a non-starter.

  14. buermann says:

    I guess this means somebody should be collecting on Warren Buffet’s outstanding million dollar bet any day now:

    http://www.cnbc.com/id/21708265/

    Also, income taxes are only 40% of federal receipts, nevermind the state and local revenues (another 10% of the GDP on top of the Fed’s 20%) that also contribute to tax burdens. FICA, sales, and property taxes are all regressive, and basically everybody but those below poverty guidelines end up paying an effective rate of about 30%, in line with the 30 odd percent of GDP that is government spending. And this is without considering the regressive features of tax incidence, in which the cost of taxes roll down hill far more often than they roll up – when businesses are able to pass tax costs onto consumers and workers through higher prices and lower wages, for instance, such as taxes on sales and payroll.

  15. DL says:

    Some here have questioned V.F.’s assertion that the top 1% pays 40% of all Federal taxes.

    While I’m not impressed with V.F.’s stock market predictions, that 40% figure (paid by the top 1%) is one that I’ve seen several times from several different sources.

    For me, the critical question is whether or not raising the marginal rate on that top 1% will mean that the 40% figure will go higher. I wish that it would, but I don’t think that it will.

    (A related question is the extent to which taxes on corporations are passed on to consumers and employees).

  16. buermann says:

    Here’s the CBO’s calculations of tax shares of federal revenue for 2004/2005:

    http://www.cbo.gov/ftpdocs/88xx/doc8885/12-11-HistoricalTaxRates.pdf

    The top 1% made 18.1% of all income, and paid 27.6% of all federal revenue in 2005. Something to whine home about, I suppose, until you figure in state and local taxes. Raising marginal dividend and capital gains rates would be the easiest way to increase the non-sensical distinction of 40% on “taxies levied on individuals” towards an actual 40% of taxes levied.

    If corporate tax codes weren’t a bedazzling array of loopholes then who pays the cost of those taxes would depend on the market: if demand has less elasticity than supply the tax incidence shifts to the consumer, and vice-versa. Under the present tax code – where corporate profit tax rates are 35% and the effective rate is closer to 15% – I have no idea how to tell who is paying what. Neither does the CBO.

  17. Jonathan says:

    A replacement of all other taxes by a national sales tax would fix all this. Then if you don’t want to pay taxes, don’t buy anything.

  18. DL says:

    buermann @ 5:03

    “If corporate tax codes weren’t a bedazzling array of loopholes then …”

    But they are, and probably always will be. And many of those in the top 1% own their own corporation.

    Hence one of the challenges in getting more money out of them.

  19. gregh says:

    Obama introduced the “stop tax haven abuse” a yr or two ago , don’t know much about it, but tax & abuse and are nasty word-pair.

    Speaking of tax-havens are there any real nations with zero personal income tax?

    And if we just have a national sales tax & removal of loop holes, can I also get a 3x inverse ETF to short tax attorney firms down to the dust until they get their bailout money?

  20. constantnormal says:

    An even more interesting statistic would be the taxes paid as a percentage of net worth, by income bracket — including the payroll taxes paid by those who wind up with no federal income tax. That’s the other perspective on taxation.

    But this is all sound and fury, amounting to nothing, as there is ZERO possibility that the government will downsize itself, or adopt tax policies (like a flat tax or a constitutional amendment requiring balanced budgets) that would impose any sort of restrictions on its cancerous growth.

    In my most pleasant dreams I like in a nation with a flat tax and a balanced budget amendment. And then I awaken, and find that I am still in the USSA, with a tax payment due in the next 90 days.

  21. buermann says:

    “its cancerous growth”

    It’s been approximately 20% of GDP since 1950. Cancer doesn’t grow in proportion to its host unless its benign, and that’s no way to describe the government.

  22. DL says:

    gregh at 7:35 pm

    It’ll be one very cold day in hell before tax lawyers are put out of business.

  23. sinful mistress says:

    Call me cynical, but, does it appear that taxes as punishment for success is how/why this card is always played. An “I got mine get yours” attitude? That’s what this smells like.

    “We don’t pay taxes. Only the little people pay taxes”
    -Leona Helmsly

  24. Top 1% earning money off the backs of the rest…and deserve their heads in a basket? Yikes.

    The individuals I know who earn $400k+ worked 60 hours a week to get there. Seems like the $4m+ group are the ones who can afford to hire the tax evasion strategists.

    - Richard
    Richard Wilson

  25. johnny says:

    Really what we need are more complex feed back loops in our models. You buy a car, the dealer pays tax on what they earn, and car manufacturer pays tax on what they earn. And this goes on and on. We all know that cost is pushed to the buyer so the bottom 40% pays everyone’s tax. Because the rich have more disposable and non productive income where money just accumulates, they will always gain greater relative wealth through successive iterations of this model. Yes they may purchase a more expensive car but relative to their wealth it actually has less impact on their disposable income than the bottom 40% buying a Focus. Because it is a percentage, successive iterations of this model will converge on a constant and comparing these constants yields the proper relative taxation.

  26. Constitution says:

    Does anyone receive more or less in services from the federal government? More or fewer roads, post offices, military protection, coining of money, border protection, borrowing of money, copyright law, foreign commerce policy (Article 1, Section 8)? No. Then why should any of us pay more or less in total tax dollars than another person? Should some of us pay more for the same car, because we make more money than another person? Take the total amount spent on Constitutionally-mandated govt services, divide by the number of taxpayers, and every taxpayer mails in a check for that amount.