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A look at who's paying how much taxes

Who's paying taxes and just how much, relatively speaking, are they handing over to the Treasury?

That's been the topic of debate since several groups released income tax studies this year.

First, the Tax Foundation reported that the tax burden of the top 1 percent of taxpayers now exceeds that of the bottom 95 percent.

Then the Tax Policy Center released its latest analysis of the distribution of federal taxes.

And now the Institute on Taxation and Economic Policy (ITEP) says lower- and middle-income families spend much more of their incomes on state and local taxes than do wealthy families.

Many, and often competing, numbers: In announcing the ITEP findings with regard to state taxes, the group's Executive Director Matthew Gardner called the distribution of the tax burden "profoundly unfair."

The average effective state and local tax rate, when the federal deduction for state taxes is taken into account, is 5.2 percent for the wealthiest 1 percent of taxpayers, according to the ITEP analysis. But the average effective rate on middle-income taxpayers is 9.4 percent. The poorest 20 percent of taxpayers face an average rate of 10.9 percent.

Overall, notes the Tax Policy Center, the federal tax system is progressive. That means that on average, households with higher incomes pay taxes that are a larger share of their income. But tax law changes over the last few years have complicated things more than usual.

The tax cuts enacted under Dubya are set to expire at the end of 2010, resulting in large scheduled increases in effective tax rates across the income spectrum.

But because those tax cuts were regressive -- that is, top earners saw a lot of tax savings -- the largest increases when they expire will occur at the top of the income distribution table.

Will that happen? We need the money to go toward a federal deficit that just topped $12 trillion.

But then again, all this happening in a midterm election year. That timing wasn't accidental, my taxpaying (and voting) friends.

Then we have the Tax Foundation data, showing how much the U.S. tax system depends on the payments from our wealthiest citizens.

Graphic taxes: Now Mint Life has literally taken a new look at the issue. Here's the personal finance site's graphic on the tax liability, or lack thereof, across each income level, highlighting the percentage in each range that will not pay any taxes.

Personal Finance Software – Mint.com

Also shown is a full breakdown of who is paying the bulk of all taxes collected by the Federal Government each year. For a better, bigger view, click on the image.

Who's paying and is it appropriate: Even before this latest data came out this summer, the Tax Policy Center was asking via its TaxVox blog, who pays taxes and who should? The Tax Foundation also examines the economic costs of high tax rates.

On the other side, we have the Citizens for Tax Justice (CTJ), which argues in Is Tax Day Too Burdensome for the Rich? that "claims that the richest one percent are paying far more than their fair share usually focus only on one type of federal tax paid (the federal income tax) while ignoring other regressive federal taxes, like the payroll tax, which is more significant for most taxpayers. They also ignore state and local taxes, which tend to tax low- and middle-income families more heavily than well-off families."

This data, say CTJ analysts, show that "the richest Americans are not being 'overtaxed' relative to other Americans or relative to their share of national income."

What do you think? Are you being overtaxed? Are the rich disproportionately bearing the U.S. tax burden? Or are middle-class and poorer taxpayers really paying more relatively speaking than the wealthy? Should Congress let the income tax rates go back up in 2011?

Regardless of which position you take, how would change the tax system?

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Greg Hollingsworth

The total tax picture is left unclear by the graphic above, as it doesn't include payroll taxes, sales tax, gas tax, sin taxes, state income taxes, etc...

In order to see the true picture of the tax burden you really need to include all of those things as a percentage of income.

Sure the rich may pay more in straight income tax, but as a percentage of income the poor see far more of their income disappear through consumption taxes, which is not shown in this graph, or to be honest any graph I've ever seen.

The tax system needs to be changed, but not by becoming even less progressive, expanding the number of tax brackets and adjusting the income ranges will allow for more appropriate levels of taxation based on overall level of income.

Keep in mind that during the 50's (which many in this country see as the Halcyon days of American society) top tax rates were more than double what they are now and there were a lot more tax brackets (I covered this pretty thoroughly in a post: http://greghollingsworth.org/blog/2009/8/10/the-high-cost-of-low-taxes.html).


I tend to agree with CTJ, the rich have much more lobbying power to let everyone know they pay more taxes. When you take into account state & local taxes the burden is not as apparent. If you also take into account sales taxes - the wealthy generally don't spend all their money, while the poor (and most of the middle class) are living paycheck to paycheck, spending everything they earn.

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