Thursday, December 6, 2012

Who Pays The Most Taxes?

This link ( ) started me thinking about this subject the other day.  It has lots of charts and graphs which conveys some really interesting points.  I then looked at a few other pages for more info and balance.  Here’s those results.

Millionaires Who Pay the Highest Tax Rate
(By Robert Frank, CNBC, 23 November 2012)

Warren Buffett and Mitt Romney have managed to create one of the enduring myths of our tax debate: that the rich pay a lower rate than the rest of America.  This may be individually true. Buffett pays a lower rate than his secretary and Romney pays a lower rate than most of us who make our living from salaries.  But nationally, the tax code is still broadly progressive. The more your make, the more taxes you pay as a percentage of your income.  According to new data from the IRS, people who make $1 million or more had an average tax rate of 20.4 percent in 2010. Tax filers who earned $30,000 to $50,000 paid an average rate of 4.8 percent, while those who made between $50,000 and $100,000 paid 7.7 percent. Those making under $30,000 had a negative effective rate, meaning they paid no federal income taxes after deductions and credits.  Put another way, millionaires pay a rate that's more than four times that of the middle class.

One caveat: Rates go up as income goes up - but only to a point. Once you hit a certain magic number among super-high earners, your tax rates start to fall slightly.  According to the IRS, average tax rates increase as income increases - until you get to around $1.5 million in annual income. Once you make $2 million, average tax rates start to decrease. The average tax rate peaks at 25.1 percent for those making between $1.5 million and $2 million.  After that it starts to go down, and falls to 20.7 percent for those making $10 million or more.
So the millionaires who pay the highest average tax rates in America are those who make between $1.5 million and $2 million. That $2 million could be called the "Top Turning Point" on the income ladder, where rates reverse.  The reasons for this aren't complicated. Once you get above $2 million, your share of income from investments increases. Investments are generally taxed at the 15 percent capital-gains rate, compared with the top ordinary-income rate of 35 percent.  Those making $10 million or more earned nearly half of their income from capital gains and dividends.  Rates don't fall all that much once you get above $10 million. Even among the top 400 earners in America, whose average income is more than $200 million, the average rate is 18 percent - still more than three times the rate paid by the middle class.  Both sides of the current political debate on taxes will no doubt see these data differently. The right will say that the rich already pay more than their fair share, while the left will point to the low rates paid by the wealthy relative to the official tax rates.  But the figures show that the more you make, the more you pay - up to the Top Turning Point.

The Facts On Tax Rates: Who Pays What

(By Harry Jacobson, CNBC)

 The current discussion led by President Obama that top earners are not paying “their fair share” of taxes is not supported by the facts. His claim could result from an unfortunate reliance on anecdotal information or (as is more likely) a political strategy to gain support for tax increases from an unwitting public and media.  So what is rhetoric and what is fact? The most common way this issue is presented by the president and his supporters is that millionaires and billionaires don’t pay as much in taxes as their secretaries. To quote directly from the recent State of the Union address, “Now you can call this class warfare all you want. But asking a billionaire to pay at least as much as his secretary in taxes? Most Americans would call that common sense.” Most Americans should know (but unfortunately do not) that millionaires and billionaires pay a whopping amount in federal taxes and disproportionately much more than their secretaries.
(By Roberton Williams, CNBC)

Let’s look at the numbers. Using data from the Internal Revenue Service in 2009, the top 1% of earners, including individuals with incomes of $343,927 or greater, represented 16.9% of all income and paid 36.7% of all federal taxes. Their average tax rate was 24.01%. The top 0.1% who had incomes of $1,432,890 or greater represented 7.8% of all income and paid 17.11% of all taxes. Their average rate was 24.3%. If we assume that a secretary’s adjusted gross income falls between $32,396 and $66,193 in 2009, the average tax rate for that income group (which represents individuals in the top 25%-50% of all earners) was 5.56%. (The entire group of earners between the top 25%-top 50% earned 20.7% of all income and paid 11.0% of all Federal income taxes.)
If we take a closer look at the top 0.1% of earners, their average adjusted gross income in 2009 was $4.4 million and their average tax bill was $1.07 million. Included in this group were 137,982 tax returns. Their total tax bill was $147.6 billion. Several sources indicate that the average income range for Secretary III’s and Administrative Assistants is between $38,000 and $43,000, and that there are 4.3 million secretaries and administrative assistants in the U.S. ( Using the average 5.6% tax rate for the tax payors in the top 25%-50% of earners, each secretary on the average pays between $2,128 and $2,408 in taxes.
So what do the facts tell us? First, the average tax payer in the top 0.1% of all earners (the group which includes the vast majority of millionaires and billionaires) pays a tax rate over four (4) times that of an average secretary. Second, the average tax payor in the top 0.1% of all earners pays as much in taxes as 444 secretaries (the income of these top 0.1% earners is about 102 times the income of the average secretary). Third, if one raised the tax rate paid by these 137,982 tax payors to 30% (as is being proposed in the so-called Buffet rule), it would take over 43 years of collecting this additional tax revenue to just equal the Federal budget deficit for one year, 2011. (We have a huge spending problem.)
In no way is my presentation of the above data meant to lessen the status and importance of secretaries and administrative assistants (nor is it intended to make a judgment about the appropriateness of income levels). Indeed, my professional life, and I venture to say the professional lives of almost all of those individuals in the top 0.1% of earners, has been blessed and made immeasurably more successful because of the secretarial and administrative support we were fortunate to have. The one and only reason for this factual essay is to make the data available for all to assess and to understand that the popular claim that the wealthy do not pay as much in taxes as do their secretaries is totally absurd.

This country has serious challenges: a government which spends well beyond its means, an education system that is expensive and doesn’t fully prepare our young people for competitive and financially rewarding careers, an energy policy that puts our country in jeopardy vis a vis other world powers, a healthcare system that is too expensive for the health outcomes it delivers, a regulatory and tax environment that restrains economic growth, and the list goes on. Let’s not spend another minute on the debate over tax rates and commit ourselves to address these challenges. Doing so successfully is the key to a better and economically stronger nation.

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