Income Tax Inequality: Who Pays Their Fair Share?

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In 2011, the Internal Revenue Services collected $1.1 trillion in income taxes from Americans — all told, about 48 percent of the total taxes collected that year (payroll taxes accounted for another 32 percent, but never mind that). Of that $1.1 trillion, about $208 billion, or 19 percent, was paid by the top 0.3 percent of cash income earners (for tax purposes, different than adjusted gross income).

According to 2011 data compiled by the Tax Policy Center — the brainchild of the Urban Institute and the Brookings Institute — this top 0.3 percent represents 433,000 taxpayers with an average pre-income of around $2.9 million, about 11.8 percent of total pre-tax income. With an average federal tax rate of 29.1 percent, this tranche averaged a tax burden of $845,000, giving this 0.3 percent of the population 10.2 percent of post-tax income.

Taking a step back, data compiled by Kiplinger show that the top 1 percent of cash income earners — those making more than $388,905 in 2011 — took home 18.7 percent of all income and paid 35.1 percent of all taxes, leaving them with approximately 16 percent of post-tax income. On the other side of the spectrum, the lowest 50 percent of income earners — those making less than $34,823 per year — took home 11.5 percent of all income, and paid about 2.3 percent of total taxes, leaving them with a smaller share of total post-tax income.

This kind of gross financial inequality is nothing new to Americans. Measured using the Gini index, maintained by the Central Intelligence Agency’s World Factbook, the U.S. falls between Uruguay and the Philippines on the list of countries with the most unequal distribution of family income. Moreover, the distribution of family income in the U.S. is less equal than the world average. The CIA calculated a Gini index score of 45 for the U.S. in 2007, the most recent year for which there is data, which compares against the world average of about 39.7 (in the Gini index, zero is a perfectly equal distribution of income, while 100 is a perfectly unequal distribution).

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