Taxes: Who Really Pays?
Although we still have Obama pushing for congress to pass his Buffet Rule, where the super rich pay more in income tax, which he says should be about 30%, others are crying foul that 46% of Americans don’t pay income tax at all. Yet our tax system is so complex. Some multimillionaires do pay a lower effective income-tax rate than some middle-income taxpayers.
And the reason it happens this way is because many receive a huge chunk of their income via long-term capital gains rather than a paycheck. Yet in 2007, the top 20% of high income earners paid 70% of federal taxes. This information comes from a recent report from the CBO.
The CBO also said that group also pulled in 60% of total pretax income. And although 46% of Americans don’t pay income tax, they still pay a hefty portion of their income to levies at the federal, state and local level. Those include payroll taxes for Social Security and Medicare; state and local sales taxes on groceries, clothing and other purchases; and federal and state excise taxes on things such as gas, cigarettes, alcohol and airline tickets.
The payroll taxes for Social Security and Medicare, alaong with state and local sales taxes, on groceries, clothing and other purchases; and federal and state excise taxes on things such as gas, cigarettes, alcohol and airline tickets.
The payroll tax for Medicare is paid by all workers, but the Social Security tax isn’t levied on income over $110,100 (in 2012). So people with bigger six-figure salaries pay a lower portion of their income to Social Security taxes than those earning less.
When it comes to the wealthy, they bear a bigger share of corporate income taxes, which are ultimately borne by individuals.
“All taxes have to be paid by somebody at some point,” says Steve Wamhoff, legislative director at Citizens for Tax Justice, the liberal lobbying arm of the Institute on Taxation and Economic Policy, a research group. “The corporate tax is paid by the owners of corporate stock and business assets.”
But in 2011, federal corporate income taxes ate up an estimated 7.7% of income for the top 1% of income earners, compared with a 0.4% bite for taxpayers in the lowest fifth of the income ladder. Then we have to add in state and local taxes. Those in the lowest 20% of income earners paid about 17% of their income to federal, state and local taxes in 2011, versus about a 30% effective rate for the top earners.
The share of total taxes paid roughly matches the share of total income for each of the income groups.
But what about the 46% who don’t pay any federal income tax? Of them, about $23% don’t make enough after deductions to have to pay. Another 23% qualify for tax breaks that bring their bill to zero or provide a refund.
“They start off with relatively low income to begin with,” Mr. Williams says, “and therefore have low tax liability before claiming any breaks.” Wealthier people face a tax rate as high as 35% on earnings, “but they get the biggest tax breaks,” he says. “They start off with such a high tax that the biggest tax breaks don’t bring them down to zero. They’re benefiting hugely from tax breaks—much more than the poor people—but because they start off at the high level, their tax bills stay positive.”
So as a result, in 2009, 1,470 millionaires were among those who paid no federal income tax.
Tags: a research group, Buffet Rule, CBO, legislative director at Citizens for Tax Justice, Medicare, payroll taxes, President Barack Obama, Social Security, Steve Wamhoff, the liberal lobbying arm of the Institute on Taxation and Economic Policy, who pays taxes
This entry was posted on Thursday, April 19th, 2012 at 8:04 am and is filed under Elections and Campaigns, Finance and Business, General, In the News, Politics. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.
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