By Adam Michael Mar 3rd, 2021 – for The Heritage Foundation
My cmnt: The only caveat I would add to this data is that the super-rich (i.e., Bezos, Buffet, Gates, etc.) pay almost no federal income taxes because they do NOT receive a salary commensurate with the wealth they actually own. For instance Buffet only pays himself a modest salary to run Berkshire Hathaway while he receives additional billions in wealth every year.
The proposal is premised on the idea that the rich don’t pay their “fair share” of taxes. However, high-income Americans already pay the large majority of taxes, and the U.S. tax system is highly progressive when compared to those of other countries around the world.
The latest government data show that in 2018, the top 1% of income earners—those who earned more than $540,000—earned 21% of all U.S. income while paying 40% of all federal income taxes. The top 10% earned 48% of the income and paid 71% of federal income taxes.
Over time, high-income Americans have shouldered a larger and larger share of the cost of government. Even the 2017 tax cuts—reviled by the political left—reduced tax bills for the lowest-income Americans by 10% while only cutting taxes for the top 1% by 0.04%. After the tax cuts, the rich pay a larger—not smaller—share of income taxes.
In fact, by almost every measure, the U.S. has one of the most progressive systems of taxation in the world, in which high-income people pay the highest tax rates.
Looking at all federal taxes, the Congressional Budget Office shows that the top 1% pay an average federal tax rate of 32%. The data show tax rates decline with income, and the poorest 20% of the population pay an average tax rate of just 1%. The left-leaning Tax Policy Center found similar results.
Just looking at all federal taxes ignores the effect of state taxes, which tend to be less progressive, but make up a smaller share of total taxes paid.
The liberal Institute on Taxation and Economic Policy estimates that combined federal, state, and local taxes are still quite progressive. It found that in 2020, the top 1% paid a 34% tax rate. The poorest 20% of Americans paid an average 20% cumulative tax rate.
The data also show the highest-income taxpayers are the only group that pays a larger share of total taxes than their share of total income.
Considering only taxes, however, ignores transfers, such as tax credits for children, anti-poverty programs, and retirement benefits that primarily go to lower- and middle-income Americans.
Transfers make the fiscal system even more progressive.