Do The Rich Pay their Fair Share of Federal Income Taxes?

The socialist wing of the country (SWOC) tell us the rich are not paying their fair share of taxes. The tax tables and my knowledge of taxes lead me to question this assumption. I looked at the IRS data as published on the tax foundation website to test the claim. I looked at the 2008 published data and charted it. The basic data and charts are attached; I will use the term income in this blog. The term income is actually the adjusted gross income (AGI) as represented in the IRS income tax forms.

Chart 1 breaks the adjusted gross income into five categories. Chart 2 is the same as chart 1 except the categories are broader. The data show the top 1 percent (in terms of income) of our population earn 20 percent of the total income reported to the IRS.  

If they are not paying their fair share one might expect them to pay less than 20 percent of the taxes. I anticipate most of us would expect the top 1 percent to pay about 20 percent of all taxes as they earn 20 percent of all income.  The SWOC rhetoric would have us believe they pay less than 20 percent (not their fair share).  

What are the facts?

The top 1 percent of income earners (who earn 20 percent of all income) pay 38 percent of all taxes.

In fact, all categories between 1 percent and 10 percent of those who file pay earn about 45.8 percent of all income. They pay about 70 percent of all taxes. This means the top 10 percent of earners pay 153 percent more taxes then if they just paid their proportion to income. I am not crying for the top 10 percent of earners but rhetoric saying they are not paying their fair share is not as convincing as it may have been without this knowledge.

Is the story different for the bottom 50 percent of earners? The data show the bottom 50 percent of earners earn 12.8 percent of income. They pay 2.7 percent of taxes.  

Wait a minute. If the rhetoric of SWOC is correct, the lower 50 percent would be paying more than 12.8 percent of the tax burden. They are not. The top 1 percent of earners pay 14 times the taxes the bottom 50 percent of earners pay. The SWOC rhetoric saying the poor are paying an unfair share is also not as convincing as it may have been without this knowledge.

Maybe the tax rates tell us a different story?  

Chart 3 and chart 4 show the average tax rate using the same categories as chart 1 and 2 (this is not the marginal tax rate which may be much higher). The top 1 percent of earners pay a 23.3 percent average tax rate. The bottom 50 percent of earners pay a 2.6 percent average tax rate.  

No wonder the bottom 50 percent of earners favor tax rate increases. They are not paying any taxes to increase. The top 1 percent pay 9 times the rate the bottom 50 percent of earners pay.

The top 1 percent of earners pay an average rate 35 percent higher than wage earners between 2 percent and 5 percent.  

Our tax system is very progressive. The SWOC rhetoric saying the poor are paying a higher tax rate then the rich is not as convincing as it may have been without this knowledge.

The data show the American income tax structure is transferring wealth from the rich to the poor. There are many readers who are happy with this. I do not share this glee. I leave this argument for another day. I blog on this because of the recent rhetoric resulting from the debt limit debate. The SWOC rhetoric saying the rich are not paying their fair share is not as convincing as it may have been without the facts presented in this blog.