Next week is Tax Day. Usually, Tax Day occurs April 15th. However, due to the pandemic, the Internal Revenue Service (IRS) postponed the annual deadline to file a federal tax return and make payments on what is owed to May 17, 2021. Some taxpayers owe Uncle Sam more than others.
Everyone loves the party game “Two Truths and a Lie.” Can you identify which of the three following statements about who pays the most in taxes?
A. The top 1 percent paid a larger share of income taxes than bottom 90 percent.
B. Half of taxpayers paid nearly all of the taxes.
C. The bottom 90 percent pay the most in all federal taxes.
A. TRUTH. In general, higher-income Americans pay a significantly larger share of total income taxes. In 2018, the top 1 percent paid roughly $615 billion, or 40.1 percent of all income taxes paid. The bottom 90 percent paid $440 billion, or 28.6 percent of all incomes taxes. The top 1 percent earn adjusted gross incomes of $540,009 and above while the bottom 90 percent have AGIs below $151,935. (Source: Analysis of IRS data compiled by the Tax Foundation.)
B. TRUTH. In 2018, the top 50 percent of taxpayers paid 97.1 percent of all income taxes. These are households with AGIs of over $43,614. Households in the top 10 percent are driving this, as they pay nearly three-quarters (71.6 percent) of all income taxes. (Source: Analysis of IRS data compiled by the Tax Foundation.)
C. LIE. Altogether, the highest earners pay the most in federal taxes. The top quintile of households pay over two thirds (67.6 percent) of all federal taxes combined including income, payroll, corporate, estate, and excise taxes. That doesn’t mean that across each category of federal taxes they pay the highest share. Lower-income Americans tend to pay larger shares of their incomes than higher income households on payroll taxes (FICA and MEDFICA), which fund our entitlement programs, and excise taxes on goods and activities such as alcohol, gas, and gambling. (Source: Analysis compiled by the Tax Policy Center).
Implications: A common refrain today is that the rich “don’t pay their fair share.” But do people really know what that means and whether it is true? Some 10 percent of Americans pay nearly three quarters of all income taxes. High-income households are paying significantly to support our federal budget, contrary to what Americans think. Yet 80 percent of Americans recently said they are bothered that wealthy Americans don’t pay their fair share in taxes according to Pew Research.
President Joe Biden and others are using misinformation about tax policy and who pays the most in taxes to seek support for raising federal taxes on high-earning households to fund more wasteful spending. Americans need to know the facts.