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)
(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. (www.bis.gov). 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.)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. (www.bis.gov). 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.
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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