Tax Policy, Fairness, & the Economy - Part 2

In the First Post of this series, Cogport reviewed the history of Personal Income Tax.

The subject is hard to absorb in detail with all the complexity of changes in tax brackets, rates, deductions, rules, and regulations over the years.

The primary objectives are a system that is fair, simple and predictable.  This considers Personal, Corporate, and other sources of Federal Income.

This report will continue the analysis of Personal Income Tax.

Cogport reported one constant that occurs through all the changes in tax law:  Since 1964, the average effective tax rate was always 12% – 14% of Total Personal Income Reported. 

However, the Devil is in the Details:  How is the Tax Burden distributed between different income levels in the U.S.  Do the Wealthy pay their fair share ?

2022 Distribution of Tax Burdens Based On Personal Income

Filings for Tax Year 2022 based on the most recent available data from the IRS:

Total personal filings:   About 165 million individual tax returns were filed.

Approximately 42% of filers paid no federal income tax.

Here is how the Tax Paid by the other 58 % was distributed:

Income Bracket	Number of Filings (millions)	Effective Tax Rate (%)	Estimated Total Tax Paid               ($ Millions)	Average $ Amount Paid Per Filing
$0 - $9,999	14.5	1.6	1,160	80
$10,000 - $24,999	24.8	4.1	17,794	718
$25,000 - $49,999	21.5	8.6	69,338	3,225
$50,000 - $99,999	20.0	12.1	181,500	9,075
$100,000 - $199,999	15.0	15.6	351,000	23,400
$200,000 - $499,999	5.5	22.1	425,425	77,350
$500,000 - $999,999	1.2	28.1	252,900	210,750
$1,000,000 and above	0.5	32.6	244,500	489,000
Total	103		1,543,617

Observations - 2022

The Top 4% of Filers (Incomes over $200,000) paid 60% of all Personal Taxes Paid.

The Middle 54% of Filers paid 40% of all Taxes Paid.

The remaining 42% of Filers paid No Tax.

How does this compare to IRS data from 2016 :

The Top 5% of Filers (Incomes over $200,000) paid 61% of all Personal Taxes Paid.

The Middle 59% of Filers paid 39% of all Taxes Paid.

The remaining 36% of Filers paid No Tax.

Long-Term Capital Gains Tax

The above data is for Personal Earnings only.  Capital Gains for assets held over one year are treated separately because the circumstances differ by income bracket and there is a different rate structure.

Current Rates:

• 0%: For single filers with taxable income up to $44,625 (or $89,250 for married filing jointly)

• 15%: For single filers with taxable income between $44,626 and $492,300 (or $89,251 and $553,850 for married filing jointly)

• 20%: For single filers with taxable income above $492,300 (or $553,850 for married filing jointly)

The Total amount of Long-Term Capital Gains Tax Paid was $378 Billion in 2022.

Summary

There has been no significant change in the distribution of tax burden in the last 6 years, even after the Tax Act in 2017 that reduced the top rate from 39.6% to 37%.  In fact, the highest earners pay slightly more tax now, due to higher top margin incomes rising over that period.

So, the situation is clear that High Income Earners (Only 4% of all Filers) pay a large majority (60%) of all Personal Taxes.

Politicians and the Media often decry that the “Rich” do not pay their fair share.

Looking at the actual data, Cogport submits that the current distribution of tax burden is fair, if not tipped against High Income Earners over $200,000 per year.

More will be discussed about the “Fairness” policy in the final post in this Series.

David Hollaender                      September 29. 2024

Cogport.com