Archive for the tag 'IRS'

1% of Taxpayers Pay Nearly 40% of All Income Taxes

Kurt Brouwer October 8th, 2007

Income tax rates are always a source of lots of disputes between the political parties, but also among economists, business people and almost everyone else. Unfortunately, a great deal of the dialogue is based on incomplete or even inaccurate information. This report sheds some light on the topic with a pretty interesting factual presentation of income groups and tax contribution. The report, written by Gerald Prante, was just released by the Tax Foundation, a nonprofit organization that has been tracking tax information since 1937 [emphasis added]:

‘The latest release of Internal Revenue Service data on individual income taxes comes from calendar year 2005, a year in which the economy remained healthy and continued to grow, as well as a year with higher-than-average price inflation. This year’s numbers show that both the income share earned by the top 1 percent and the tax share paid by the top 1 percent have reached all-time highs. In 2005, the top 1 percent of tax returns paid 39.4 percent of all federal individual income taxes and earned 21.2 percent of adjusted gross income, both of which are significantly higher than 2004 when the top 1 percent earned 19 percent of AGI and paid 36.9 percent of federal individual income taxes…

…Just as the highest earners lost the biggest percentage of their incomes during the recession of 2001, so they have prospered the most as the economy has continued to rebound. For example, from 2000 to 2002, the adjusted gross income (AGI) of the top 1 percent of tax returns fell by over 26 percent. In that same period, the AGI of the bottom 50 percent of tax returns actually increased by 4.3 percent. However, since 2002, as the recession has ended, AGI has risen by 61 percent for the top 1 percent and 10.7 percent for the bottom 50 percent.

From the report we learn that the highest earners have incomes that are substantially more volatile than lower income earners. In fact, during the stock market downturn of 2000-2002, the top earners saw a drop of 26%, while those in the bottom 50% actually saw their incomes go up by over 4%. And, despite all the rhetoric about income inequality growing steadily, it appears from the data that over the period from 2000-2005, the gains were very close.

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