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KEY TRENDS IN TAX DATA
Taxes are unpleasant and unfair. We have all heard this. And government works hard to keep it that way. The only thing about taxes that all Americans can agree on is that someone else should pay them.
Perhaps we can learn something by examining how much we pay in taxes, who pays them and how our tax payments have changed in the last 20 years or so. We can do this pretty easily thanks to one of our tax-supported government agencies, the Internal Revenue Service.
Every year, the IRS examines all the returns that are filed and analyzes changes in the patterns of tax payments. The latest year for which the data is complete is 2005.
The basic data is available in the imaginatively titled work, "Individual Income Tax Rates and Shares, 2005:“ Here are the key lessons of that data:
Historically, it is basically same-old, same-old. In 2005 those of us who paid income taxes collectively paid
13.6 percent of our income. Some paid more. Some paid less. But the average burden was not exactly overwhelming.
Today, fewer people pay income taxes. In 1986, Americans filed 103 million federal income tax returns. Of those, 84 million had to pay some taxes. That is 81.5 percent of all returns. By the time Bill Clinton took office, the percentage of filers paying taxes had declined to 75 percent. During the Bush years, the percentage of filers who paid taxes continued to decline. It fell to only 67.4 percent in 2005.
This is not a minor number. In 2005, about 134 million American households filed tax returns. Only 90 million of them paid any taxes. While the number of households filing returns rose by 5 million, the number of households actually paying income taxes fell by 6 million. Basically, 11 million lower-income households do not have to pay income taxes that would have had to pay taxes before the Bush tax cuts.
Of course, the federal income tax is not the only tax that we pay. Anyone who works pays the employment tax, a stiff 15.3 percent of wage income.
Today, the rich pay more; the poor pay less. Those with high incomes continue to pay at much higher tax rates than those with lower incomes. They also pay much more of the total tax bill. Only 953,000 taxpayers, about 1 percent of the total who paid taxes, paid at the top 35 percent tax rate in 2005. They paid $315.4 billion in taxes on their $1,094 billion in income.
The most common marginal tax rate is 15 percent. That is the rate paid by 54.4 million taxpayers. This means the typical taxpayer pays at less than half the tax rate of the top earners.
The second most common marginal tax rate is 10 percent. About 25.5 million taxpayers pay taxes at that rate. This group pays taxes at one-third the rate paid by the highest-income taxpayers. So of the two-thirds of all households that pay anything in income taxes, about three-quarters pay at 15 percent or less.
Another 22 million, 3.7 million and 1.5 million households pay income taxes at marginal rates of 25 percent, 28 percent and 33 percent, respectively. In the year 2000, this top 25 percent of all taxpaying filers paid a whopping 83.6 percent of all income taxes. By 2005, they paid 85.6 percent of all taxes. So in spite of tax rate cuts for the well-off, the share of taxes paid by the well-off has risen.
What does all this mean?
Simple. When political talk turns to tax "fairness;' no political candidate mentions where a high income begins.
Thinking you might want to know:
You were in the top 25 percent of taxpayers in 2005 if your taxable income exceeded $61,055. Millions of Americans have no idea what fat cats they are.
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