Income Tax Disparity for the Rich?

Often cries for tax reform come from those who believe our progressive tax structure is so out of whack that the lower and middles classes should be ashamed of themselves.

Here’s a link:

http://www.atr.org/content/pdf/2008/August/081408ot-federalincometaxandwhattheypay.pdf

That link boasts the following:


According to IRS information from 2006

In terms of Share of Total Adjusted Gross Income

The top 1% earned 22% yet accounted for 40% of the total income tax burden.
The top 5% earned 37% yet paid in 60% of the total pie.
The top 10% earned 47% and paid 71%
The top 25% earned 68% and paid 86%
The bottom 50% earned 12.5% and paid only 3%

While some disparity exists it deserves closer examination. A comment was recently made that the top 25% foot 86% the bill for the rest of us. This has become a common ploy by Glenn Beck fans used to distort the reality of truth demonstrated by this imbalance.

Comparing the percentage of taxes paid to the percentage of the population represented is absolutely useless. Saying that a group collects almost 70% of income yet pays 86% of income tax collected is useful. Usually the balance of income earned by each echelon is left from the argument by the distorters of truth.

Something to consider, when someone throws numbers out like the top 25% pay 86% of the burden, they seek to WOW you with this implied extreme imbalance without a point of reference. One thing that reduces the WOW factor of these stats for me is to remember that among that bottom 50% we have to include the homeless, jobless, people on welfare and others who pay zero tax. Why when this comes up does the middle class always get lumped with the lowest of the lower class? I wonder what the statistics look like if we eliminate the bottom 10% from that bottom 50% figure. These numbers are not available on that link.

However, using the numbers we do have we can draw some very interesting conclusions that seem to reveal a certain attempt at sensationalizing the issue. if we take the top 25% (earns 68% pays 86%) less the top 1% (earns 22% and pays 40%) we are left with a rather wealthy 24% of our population earning 46% of income and paying in 46% of the tax burden. Why print details about the top 25% to make an argument for reform when clearly the problem lies at much higher echelons than 25%?

Furthermore, the top 5% less the top 1% appears to pay 20% of the collected tax burden while earning only 15% of the total adjusted gross income, much less a disparity than occurs for the top 1%. The top 10% less the top 5% earns 10% yet pays 11%. So the disparity is clear only at the extreme upper echelons of adjusted gross income. I'd like to see the numbers for the top .1% so as to eliminate them from the top 1% but those numbers do not appear on this table.

Another thing to consider: When we are talking about people who pay ZERO income tax, usually the immediate assumption is that only the lowest income earners are ~guilty~ of such a thing. Consider the wealthy and retired. Do they pay income tax from year to year? I suppose they would if they had investments that paid off but I doubt they rank among the upper echelons of adjusted gross income earners and if their investments were a losing venture I suppose they’d pay zero income tax. The above referenced table is a snapshot for one year so in 2006, it is very likely that some very wealthy individuals paid ZERO income tax. Consider also corporate income taxes. These might populate some of the highest echelon yet one could argue they pay zero tax as this cost is simply passed on to their customers in pricing procedures.

As you can see, I don’t buy into the passing of guilt or judgment or cries for reform based solely on who pays the most or least percentage of the income tax pie. It’s much more complicated than “The top 25% pay 86% of this burden” as one commenter put it.