Who Pays What And How Much

With the final date for filing federal income taxes fresh in our rearview mirror this week should be a good time to take a look at how much the federal government collects and from whom it is collected from.

The experts say that the recession we are trying to recover from first began in December 2007 and the feds tax taken from us Americans was around $2.6 trillion. By 2009 the taxes collected had fallen to $2.1 trillion before rising in 2010 by a small amount.

According to the Congressional Budget Office’s (CBO) analysis of President Obama’s budget for 2012, revenues were expected to grow steadily to almost $4.6 trillion by 2021.

Federal revenue comes mostly from individual income taxes, corporate income taxes, estate taxes, gift taxes, customs duties, fees, fines and excise taxes.

Individual income taxes hit a record high in 2007 of $1.16 trillion, but began dropping the next year to $915 billion by 2009 and on down to $898 billion in 2010. The experts say the recession ended in 2009 and individual income taxes should increase over the next few years.

The public has been told that the burden of income taxes are being paid by the middle and lower classes and that the upper class (rich folks) do not pay their fair share. This is simply not true because the tax distribution tables show a different story in a highly progressive tax system.

According to the CBO report the average federal tax rates in 2007 (the latest available) higher income Americans have paid a much larger share of the tax bill. The report showed that the top one percent of taxpayers paid almost 40 percent of the total federal income taxes while earning about 19 percent of the total income. The top 20 percent paid 86 percent of the total income taxes while earning around 56 percent of total income.

In comparison middle income Americans paid less than five percent of the federal income taxes while earning over 13 percent of the total income. Low income Americans paid no federal taxes and actually received money back from the government while earning over eight percent of the nation’s total income. No doubt that our federal tax code is highly progressive.

Many people continue to claim that the Bush tax cuts helped the rich more than the middle and lower class. Rates on all federal taxes were lower in 2007 on all federal taxpayers, however the largest tax reduction occurred on the lower end of taxpayers. While the top wage earners taxes dropped the least. Top taxpayers rates dropped around ten percent while middle income folks saw a decline in taxes of about 38 percent and low income taxpayers taxes dropped around 48 percent.

The CBO information clearly shows that contrary to popular belief the high income taxpayers not only pay the largest share of taxes but pay those taxes on a smaller share of income earned. No question about it, over the past few years the United States tax code has become more progressive than ever.

The information for this column came from a column written by Dr. Martin Regalia that appeared in the May edition of the U.S. Chamber Magazine.