We’ve all heard “the rich hardly pay any tax”. Is this true? Nope! IRS statistics for 2006 income tax returns might surprise you. The wealthiest definitely pay the most tax. But, your guess of what is considered “wealthy” may be a shock, too.
Be careful! The chart below needs some thought. The Census Bureau counts people – IRS counts tax returns. We have 304 million Americans, but only 138 million tax returns. A family might file a single return. Those with very low income are not required to file at all. Few returns come from Americans under age 18.
Imagine that all tax returns are stacked in a huge pile in order of their reported income, with highest incomes on top, and lowest incomes on the bottom. Looking- closely at this gi ant stack – – –
_______All Tax Returns Top 1 % Top 5% Top 10% Top 50%
Returns (millions) 138 1.38 6.92 13.8 69.2
AGI (Dollars) N/A $388,806 $153,542 $108,904 $31,987
Share of Income (%) 100.0 22.1 36. 47.3 87.5 ________________________________________________________________________
Tax share (%) 100.0 39.9 60.1 70.8 97.0 ________________________________________________________________________
Number of Returns. This row counts only returns with positive income. It is possible to have a return with negative income.
AGI refers to Adjusted Gross Income. It’s the bottom number on Page 1 of Form 1040. Not all “income” is included. Tax-exempt interest is not.
Social Security income may be absent, orpart may be included. A business or rental can have negative income.
Tax Share is surprising. The top 1% of returns generate nearly 40% of all income tax revenue, but had only 22% of all reported income. Also note – the top 50% of returns pay 96.7% of all income tax. The lower 50% of returns pay only 3.0% of all income tax, or about $26 billion. In truth, the lower 50% collect more than they pay, because of the earned income credit, but this credit comes from Social Security taxes, not income tax!
Surprised? Many couples with an income just over $100,000 probably consider themselves to be “middle income”. IRS would definitely call them “wealthy” and place most of them in the top 10% of all incomes.
Visit our new website.