I hear a lot of grumbling about taxes, most especially about people and business paying their “fair share”. It is important to know who is paying taxes, and how much. Some of those numbers are easy to come by, some are hard, and some are impossible to even estimate. Let’s focus on who pays US Federal income taxes and how much they pay, since those are the easiest numbers to get.
The best place to go for US Federal income tax statistics is the IRS, as income tax returns are the best source of accurate information. Unfortunately, the IRS has not posted much information since 2009, and complete information on business taxes after 2003 is not available. They cite that the years 2004-2008 are “under review”, which likely means there are political or other unknown reasons for not releasing the information; no reasonable review could take that many years. Still, the numbers tell us a lot. First, let’s look at taxes on individuals, meaning people and their families:
Federal income taxes on individuals (2009 data)
| All incomes | Less than $50,000 | $50,000-$74,999 | $75,000-$99,999 | $100,000-$199,999 | $200,000 or more | |
| Number of returns | 141,458,638 | 93,832,822 | 18,759,162 | 11,419,877 | 13,516,673 | 3,930,104 |
| Total of AGI* (billions) | $7,801 | $1,892 | $1,153 | $987 | $1,800 | $1,969 |
| Total taxes (billions) | $968 | $95 | $95 | $94 | $232 | $450 |
| Ratio of AGI to taxes | 12.41% | 5.03% | 8.29% | 9.53% | 12.91% | 22.89% |
| Group % of total Fed tax | 100.00% | 9.83% | 9.88% | 9.72% | 24.00% | 46.57% |
| Tax per return in group | $6,843 | $1,014 | $5,098 | $8,238 | $17,190 | $114,715 |
| Group % of tax returns | 100.00% | 66.33% | 13.26% | 8.07% | 9.56% | 2.78% |
| Group % of total AGI | 100.00% | 24.25% | 14.78% | 12.65% | 23.08% | 25.24% |
* AGI – Adjusted Gross Income. Gross income is all your income added up from all sources (wages, tips, gambling winnings, etc.). Adjusted means certain allowed items are subtracted, such as pre-tax retirement contributions or alimony payments. AGI is not the same as taxable income, because exemptions and deductions are subtracted from AGI to calculate taxable income.
If you made more than $112,124 you were in the top 10% of AGI. If you made more than $343,927, you were in the top 1% of AGI.
If we look at the above table, we can see some interesting facts for 2009:
- Individuals earned nearly $8 trillion dollars and paid nearly a trillion in US Federal taxes – about an eighth.
- The bottom two-thirds of all tax returns earned about a quarter of all the income, but paid less than 10% of all US Federal taxes.
- The top third of all tax returns earned about three-quarters of all the income, but paid more than 90% of all US Federal taxes.
- The top eighth of all tax returns earned about half of all the income, but paid about 70% of all US Federal taxes.
- The top 3% of all tax returns earned about a quarter of all the income, just like the bottom two-thirds, but they paid about half of all US Federal taxes – nearly five times as much as the bottom two-thirds paid, as a group.
Businesses also pay a significant amount in taxes. For 2003, we have:
Business taxes (2003 data)
| Number of returns | 27,486,690 |
| Net income (billions) | $1,953 |
| Taxes paid (billions) | $471 |
| % of income to taxes | 24.12% |
Businesses made more money in 2009, but there is only tax information for corporations:
Corporations (2009 data)
| Number of returns | 5,824,545 |
| Net income (billions) | $919 |
| Taxes owed (billions) | $205 |
| % of income to taxes | 22.31% |
If we use the business numbers that are available and plug in the corporate tax rate for 2009, we can make a guess:
Business taxes (2009 data, with estimated taxes)
| Number of returns | 31,607,710 |
| Net income (billions) | $3,133 |
| Taxes paid (billions) | $699 |
| % of income to taxes | 22.31%* |
* This is a guess, using the corporate 2009 tax rate. 2003 shows a higher average tax rate.
Individuals paid $958 billion in US Federal income tax, while (if we accept the guess above) businesses paid $699 billion. Businesses paid somewhere around double the tax rate that individuals paid.
As you can see from these tax rates, people who earn more money are taxed at a much higher rate and pay far more of the taxes each. This is labeled “progressive”, and the United States has one of the most progressive tax systems in the world*, especially when refundable tax credits are included.
* See the book, “Growing Unequal? Income Distribution and Poverty in OECD Countries”
When I hear people saying, “The rich need to pay their fair share!” I like to show them these facts. The rich are paying far more than their fair share. This will be examined in a later post, since “unfair”, “morally incorrect”, and “detrimental” are not the same thing — something can be unfair, but morally correct and beneficial at the same time.
Avoid waging class warfare, for if it were to succeed, we would all be equal in misery and poverty.