Tuesday, October 14, 2008

Who Pays?

During this election cycle, there has already been a great deal of talk about “the rich vs. the poor”, especially as it relates to income and income taxes. I decided to try to figure it out for myself rather than only listening to the politicians and talking heads on TV. Here is what I found.

The IRS does an annual study on whom and what is paid in income taxes. Their latest study is data from the 2006 tax period. They break down their data by percentiles.

To get into the top 10% of taxpayers you needed to have an adjusted gross income (AGI) of $108,904 in 2006. That group of taxpayers earned 47% of the income but paid 71% of the taxes.

The top 1% of taxpayers, which required an AGI of at least $388,806, earned 22% of income but paid 40% of the taxes.

The bottom 50% of taxpayers earned 13% of AGI and paid a record low 3% of the taxes.
Most surprising to me was the way that the various percentiles share of taxes have changed over the past twenty years. In 1986 the top 1% paid 26% of the total tax compared to 40% today. The top 10% paid 55% compared to 71% today. And the bottom 50% paid 6% compared to only 3% today.

I wonder what will happen to our country when the bottom 50% doesn’t pay any of the income tax?

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