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Who Pays Taxes in America September 3, 2008

Posted by Steve in : Weblog , trackback

As we are in the political season where each politican wants to use the federal government numbers to bolster his or her tax increase or tax cut, I thought I would share with you the plain facts about who pays taxes in the U.S.

In 2006, the latest year to get actual numbers, there were 135.7 million tax returns filed, and of those, IRS data, shows that in 2006, 92.7 million (68.3%) of the tax returns came from people who paid taxes into the Treasury.

More than  43 million tax returns (or 31.7%) were filed by people with positive adjusted gross income (AGI) who used exemptions, deductions and tax credits to completely wipe out their federal income tax liability. Not only did they get back every dollar that the federal government withheld from their paychecks during 2005, but some even received more back from the IRS. This is a result of refundable tax credits like the Earned Income Tax Credit, which are not included in the aggregate percentile data here. (For more on the limitations of the data on this page, see the notes below. For a detailed paper on the distribution of the entire U.S. fiscal system, including all federal, state and local taxes, read Who Pays Taxes and Who Receives Government Spending? An Analysis of Federal, State and Local Tax and Spending Distributions, 1991 - 2004.)

2006 income taxes

Tax year 2006’s numbers (see below) show that both the income share earned by the top 1 percent of tax returns and the tax share paid by that top 1 percent have once again reached all-time highs. In 2006, the top 1 percent of tax returns paid 39.9 percent of all federal individual income taxes but only earned 22.1 percent of adjusted gross income, both of which are significantly higher than 2004 when the top 1 percent earned 19 percent of adjusted gross income (AGI) and paid 36.9 percent of federal individual income taxes. The bottom 50% of all tax return filers paid less than 3% of federal income taxes in 2006.

percent of taxes paid

The top-earning 25 percent of taxpayers (AGI over $64,702) earned 68.2 percent of the nation’s income, but they paid more than four out of every five dollars collected by the federal income tax (86.3 percent). The top 1 percent of taxpayers (AGI over $388,806) earned approximately 22.1 percent of the nation’s income (as defined by AGI), yet paid 39.9 percent of all federal income taxes. That means the top 1 percent of tax returns paid about the same amount of federal individual income taxes as the bottom 95 percent of tax returns.

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