Monday, August 15, 2011

Do the super-rich really pay very little in income taxes?

Warren Buffett writes that the super-rich pay a smaller percent of their income in taxes than the middle class. Is this true?

I went to the IRS website to get its published statistics on tax returns. Table 1.1 shows aggregate federal income taxes paid by size of adjusted gross income. Download the Excel spreadsheet for 2009 here.

Here's an excerpt:

AGI Income tax as
% of taxable income
Income tax as
% of AGI (less deficit)
$1-$4,999 11.9% 4.8%
$5,000-$9,999 10.2% 2.6%
$10,000-$14,999 6.8% 2.3%
$15,000-$19,999 6.6% 3.0%
$20,000-$24,999 8.7% 4.5%
$25,000-$29,999 9.7% 5.4%
$30,000-$39,999 10.0% 6.0%
$40,000-$49,999 10.6% 6.8%
$50,000-$74,999 11.6% 7.7%
$75,000-$99,999 12.3% 8.5%
$100,000-$199,999 16.3% 11.9%
$200,000-$499,999 24.6% 19.6%
$500,000-$999,999 28.8% 24.4%
$1 mill-$1.5 mill 29.4% 25.3%
$1.5 mill-$2 mill 29.6% 25.6%
$2 mill-$5 mill 29.7% 25.8%
$5 mill-$10 mill 29.1% 25.4%
$10 mill+ 26.3% 22.6%

One can argue about whether the super-rich should pay more than they are right now, but it's just not true (on average) that they pay a lower percent of their income in income taxes than the middle class.

The table also shows us how much total income there is in each AGI category:

AGI # of returns Total AGI (less deficit),
thousands
$1-$4,999 10,447,635 $27,218,608
$5,000-$9,999 12,220,335 $92,407,278
$10,000-$14,999 12,444,512 $155,465,805
$15,000-$19,999 11,400,228 $199,017,560
$20,000-$24,999 10,033,887 $225,167,737
$25,000-$29,999 8,662,392 $237,994,230
$30,000-$39,999 14,371,647 $499,879,773
$40,000-$49,999 10,796,412 $483,088,798
$50,000-$74,999 18,694,893 $1,149,068,817
$75,000-$99,999 11,463,725 $990,337,913
$100,000-$199,999 13,522,048 $1,801,446,897
$200,000-$499,999 3,195,039 $905,347,402
$500,000-$999,999 492,568 $332,037,478
$1 mill-$1.5 mill 108,096 $130,149,237
$1.5 mill-$2 mill 44,273 $76,148,200
$2 mill-$5 mill 61,918 $182,986,391
$5 mill-$10 mill 14,322 $97,493,467
$10 mill+ 8,274 $240,133,885

Suppose we imposed a 100% tax rate on people making more than $1 million a year, and let's pretend that they wouldn't generate any less taxable income in response. (In reality, they would of course stop working altogether or hide their income in response to a 100% tax, so the government wouldn't be able to collect all that income.)

The government would then collect $727 billion from these people, which would be $549 billion more than it actually did. That would still not be enough to eliminate the $1.65 trillion federal deficit in 2011.

This is why Obama's so-called millionaires and billionaires tax hike proposal would have raised taxes on AGIs starting at $200,000 a year for singles and $250,000 a year for couples. There just isn't enough money available in the $1 million+ segment to close the deficit.

And this is why any deal that ultimately balances our budget will have to at least partially hit the upper-middle class (which I loosely define as households that make more than $50,000 a year, which is the top 36 percentiles), either through tax hikes or benefits cuts.
 --Rare original content from this blog's author. Original post draft mistakenly used 2008 numbers and said "million" when I meant "billion" dollars.