Who pays all of the income taxes?

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The IRS recently released the data relating to 2011's tax filings (they aren't the speediest of operations).

Here are the summarized results

The money paragraph for me was.

And yet, people still believe that the rich don't pay their fair share. They pay the entire share.

 

What is more striking to me is that the top 10%/5%/1% earn so much more money than everyone else that their income taxes account for such a large percentage of the total taxes collected. Yes, there is a difference in percentages between AGI (income) and taxes, but that's what a marginal tax system is all about.

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I just looked at the article again. Table 1 is interesting. People in the 5-10% category (i.e. in the top 10%, but excluding those in the top 5%) earn between $120,000 and $168,000. Their earnings account for 11.5% of the total, and taxes are almost identical at 11.8%. So it is completely fair for them. It gets a bit skewed for people in the 1-5% category ($168,000-$389,000) with 15.2% of earnings and 21.4% of taxes. The top 1% (>$389,000) are at 18.7% of income and 35.1% of taxes, but frankly, I have trouble mustering up a lot of sympathy for taxes paid by people earning that kind of money, particularly considering that their average tax rate (table 8) is only 23.5% (and is down 4 percentage points from 10 years earlier); interestingly, the average tax rate for the top 0.1% (income > $1.7 million) is slightly less than the top 1%.

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Just looked at it again. Man, there is a lot of good information in those tables. For example, looking at tables 2 and 7, there are 68.3 million taxpayers who earned less than $35,000. Now I know the argument is that people have the opportunity to get better (i.e. higher-paying) jobs if they work hard enough, get an education, etc. And while that is certainly true on an individual basis, it is not true in the aggregate. There is no way that there are enough high-paying jobs (even in just the top 50%) for another 68.3 million people. You know what you’d get if 68.3 million people went out and got useful college degrees? You’d get 68.2 million educated people who can’t find jobs in their field of study, and will therefore be doing exactly what they were doing before they got their degree.

 

Keep in mind that the taxpayer pool has been shrinking for over 30 years due to declining income tax rates and people dropping out of the system (baby boomers coming of retirement age, war veterans, those unemployed or underemployed since the recession, etc).

As the total amount of tax being paid shrinks, and capital shifts from the bottom to the top, the average amount paid by the highest income earners increases in turn.

 

Kind of makes the "flat tax to benefit the poor" argument look deceptive....

 

Exactly. If the flat tax rate would have to be 12.54% (the average rate from table 8) in order to maintain the overall level of tax revenue, then everyone in the bottom 90% (income < $120,000) would have a higher federal tax rate than they have now - the top 10-25% average rate is lower at 9.7%, and even the 5-10% rate is only slightly higher at 12.83%.

 

That is the main argument, yes. Except that it holds no water. The complexity of the tax system doesn’t come from the rates – it comes from determining what constitutes taxable income, and that complexity won’t go away just by having one tax rate. And special interest groups will see to it that their "tax sheltering mechanisms" survive in one form or another.

Yep. If you know what's good for you, don't mess around with CPA's.