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November 28 2012

# Doing the Math on the “Fair Share” Tax Myth

Vicki E. Alger

At a recent press conference with the president, House Minority Leader Nancy Pelosi (D-CA) insisted, “Voters sent a clear message to Republicans in the election: we must stand up for the middle class and ensure the wealthy pay their fair share.”

Somebody should have checked her math. Even CNBC (widely considered to have a left-leaning bias) is tiring of this “fair share” trope, admits wealthier Americans pay the highest tax rates:

According to new data from the IRS, people who make \$1 million or more had an average tax rate of 20.4 percent in 2010. Tax filers who earned \$30,000 to \$50,000 paid an average rate of 4.8 percent, while those who made between \$50,000 and \$100,000 paid 7.7 percent. Those making under \$30,000 had a negative effective rate, meaning they paid no federal income taxes after deductions and credits.

Put another way, millionaires pay a rate that’s more than four times that of the middle class.

One caveat: Rates go up as income goes up — but only to a point. Once you hit a certain magic number among super-high earners, your tax rates start to fall slightly.

According to the IRS, average tax rates increase as income increases — until you get to around \$1.5 million in annual income. Once you make \$2 million, average tax rates start to decrease. The average tax rate peaks at 25.1 percent for those making between \$1.5 million and \$2 million.

After that it starts to go down, and falls to 20.7 percent for those making \$10 million or more.

So the millionaires who pay the highest average tax rates in America are those who make between \$1.5 million and \$2 million. …

Rates don’t fall all that much once you get above \$10 million. Even among the top 400 earners in America, whose average income is more than \$200 million, the average rate is 18 percent — still more than three times the rate paid by the middle class.

One thing’s for certain. If the president gets his way, whether you earn \$30,000 or \$200 million, you’re going to be paying a lot more in taxes without making much of a dent in the national debt.