Thursday, October 21, 2021

Why the rich pay a bigger share of their income to the feds than you think

Must read

It’s no secret the rich tend to pay less in taxes than the rest of us. But the gap isn’t as big as most people think.

The income group included in the recent Republican proposal to overhaul the U.S. tax code received the smallest average federal tax bill of any of the income groups in 2015, according to data from the Congressional Budget Office. This group – so-called households at the very top of the income ladder – paid an average federal tax bill of $24,169.

That’s just 1.2 percent of the average federal tax bill. And it’s the same proportion that the average U.S. worker paid last year.

Here’s why: That proportion covers the differences between the top 1 percent of the income ladder and the bottom 99 percent, the CBO said. The top 1 percent and the bottom 99 percent are neither equal in terms of income nor even in terms of levels of work to earn it.

And many of the federal taxes that the richest people pay are not the ones a few simple words describe.

That means the wealthiest Americans pay a tax bite that’s too broad. The top 1 percent pays 13.1 percent of the tax burden, or 2.2 percent of the average tax bill for all income groups, according to the Bureau of Economic Analysis.

That’s up from 10.6 percent of the tax burden in 1970. And it’s worth pointing out that over time, the federal income tax rate for top-bracket taxpayers did go up in stages, peaking at 70 percent in 1981. But other federal taxes, such as taxes on estate and gift taxes, also were cut. And Congress has since cut them further.

By contrast, many rich people pay very few taxes at all, as TechPresident explains:

The richest Americans have incredibly low tax bills, largely because they are very creative, lawyers, business executives and entrepreneurs. They are pretty successful in transferring their profits, which are often passed up to their children. By some estimates, these folks are paying under 9 percent of their net incomes in taxes (over and above their investment earnings).

And there’s one more reason why the richest people are receiving a larger percentage of the federal tax bill than the middle class: Wealthy people aren’t using the resources of the federal government much, the CBO noted.

People in the top 0.1 percent use $3.5 trillion of the U.S. government’s $11.8 trillion in government expenditures from fiscal year 2014 to 2015, the CBO found. That’s a total of 20 percent of federal expenditures in fiscal year 2014.

On the other hand, the top 1 percent spent a total of just $59 billion on federal government programs. That’s about 3 percent of federal expenditures in fiscal year 2014.

More articles

Latest article