The Rich Are Not Paying Their Fair Share!

federal income tax burden

If you are like most people, you would like to have a dollar for every time you have heard those words spewing from the mouth of somebody in Washington, DC. Generally, these politicos are banking on the fact that the average American has no idea how the tax burden is distributed across our society. And, it is always an easy sell when benefits are promised that will be paid for by somebody else. But what are the facts as they relate to our federal income tax burden?

The Tax Foundation is an independent non-profit entity formed in 1937 that conducts worldwide research on taxation of all forms. It recently analyzed IRS data1 on the 2018 tax year (the latest available) and reports the following:

  • The share of reported income earned by the top 1% fell slightly from 21% in 2017 to 20.9% in 2018.  Their share of the federal income taxes paid rose by 1.6% to 40.1% of total federal income taxes paid.
  • Since 2001, the 1%’ers share of total federal income taxes paid has increased from 33.2% to the new high of 40.1% in 2018.
  • In 2018, the top 50% of all taxpayers paid 97.1% of all individual income taxes. The bottom 50% of taxpayers paid the remaining 2.9%.
  • The top 1% paid a greater share of individual income taxes (the 40.1% cited above) than the bottom 90% combined, who paid 28.6% of the total. The top 5% of tax payers paid 60.3% of all taxes collected and the top 10% shouldered 71.4% of the federal income tax burden.  
  • The top 1% paid an average of 25.4% tax on every dollar of income. This is more than seven times the average rate of 3.4% paid by taxpayers in the bottom 50%. Across all 144.3 million taxpayers from 2018, the average rate was 13.3%.

Clearly, the United States has a progressive tax code with the wealthier segments absorbing greater proportions of the taxes. The real question is, “How progressive must it be for voters to believe that everyone is truly paying their fair share?” Perhaps, pollsters might obtain different results if the entire electorate was more informed about its current degree of progressivity. 

If you would like to learn more about these and other wise financial planning moves, please contact us through our Level 5 Financial LLC website or via phone at 719-323-1240.  This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice.  You should consult your own tax, legal and accounting advisors before engaging in any transaction.

1Source:  IRS, Statistics of Income, Individual Income Rates and Tax Shares, 2018.

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