The naked truth about income taxes

A peek at the numbers exposes some trends that may surprise you. One example: In 2005, the rich paid a bigger share of the total tax bill than they did in 2000, before Bush's tax cuts.

By Scott Burns

Taxes are unpleasant and unfair. We all know this. And our friends in government work hard to keep it that way.
The only thing about taxes that all Americans can agree on is that someone else should pay them.

Perhaps we can learn something by examining how much we pay in taxes, who pays them and how our tax payments have changed in the last 20 years or so. We can do this pretty easily thanks to one of our tax-supported government agencies, the Internal Revenue Service.

Every year it examines all the returns that are filed and analyzes changes in the patterns of tax payments. The latest year for which the data is complete is 2005. The basic data are available in an imaginatively titled work, "Individual Income Tax Rates and Shares, 2005".

Here are some of the key lessons of those data:

Historically, little has changed. In 2005, those of us who paid income taxes collectively paid 13.6% of our income. Some paid more. Some paid less. But the average burden wasn't exactly overwhelming.

In fact, for all the drama about George W. Bush's tax cuts, the reality is that our tax burden is about the same today as it was before Bill Clinton was elected president. In the seven years before Clinton, our average tax rate was 13.86%. In 1992, we paid taxes at an average rate of 13.7%, about the same as in 2005.

During the eight years Clinton was in office, the average tax rate rose from 14.1% in 1993 to 16.1% in 2000. In the Bush years since then, the average tax rate has declined from 15.2% to 13.6%.

Do you see high drama here? Do you see gigantic change?

Today, fewer people pay income taxes. In 1986, Americans filed 103 million federal income-tax returns. Of those, 84 million filers had to pay taxes. That's about 81.5% of all returns. By the time Clinton took office, the percentage of filers paying taxes had declined to around 75%. During the Bush years, the percentage of filers who paid taxes has continued to decline. It fell to about 67.4% in 2005.


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This is not a minor number. In 2005, 134 million American households filed tax returns. Only 90 million of them paid any taxes. Though the number of households filing returns rose by 5 million between 2000 and 2005, the number of households actually paying income taxes fell by 6 million. Basically, 11 million lower-income households don't have to pay income taxes that would have had to pay taxes before the Bush tax cuts.
Of course, the federal income tax isn't the only tax that we pay. Anyone who works pays the employment tax, a stiff 15.3% of salaries and wages. Republicans tend to forget this.


Today, the rich pay more; the poor pay less. Bush tax cuts notwithstanding, those with high incomes continue to pay at much higher tax rates than those with lower incomes. They also pay much more of the total tax bill, a reality that seems to have escaped both Hillary Clinton and Barack Obama.

Only 953,000 households -- about 1% of the total who paid taxes -- paid at the top 35% tax rate in 2005. They paid $315.4 billion in taxes on their $1.1 trillion in income.
The most common marginal tax rate is 15%. That's the rate paid by 54.4 million households. This means the typical taxpayer pays at less than half the tax rate of the top earners.

The second most common marginal tax rate is 10%. About 25.5 million households pay at that rate. This group pays taxes at one-third the rate paid by the highest-income taxpayers. So of the two-thirds of all households that pay anything in income taxes, about three-quarters pay at 15% or less.

An additional 22 million, 3.7 million and 1.5 million households pay income taxes at marginal rates of 25%, 28% and 33%, respectively. In 2000, this top 25% of all taxpaying filers paid a whopping 83.6% of all income taxes. By 2005 they paid 85.6% of all taxes. So despite tax cuts for the well-off, the share of taxes paid by them has risen.

What does this all mean?

Simple. When political talk turns to tax "fairness," none of the candidates mentions where a high income begins. So I thought you might want to know. You were in the top 25% of taxpayers in 2005 if your taxable income exceeded $61,055.

Millions of Americans have no idea what fat cats they are.

John, all that is interesting and the data was extremely informative.

A couple of thoughts on the subject however.

First and foremost what your numbers are saying is that more and more people are falling out of tax range than going into tax range.

That means Americans on average are getting poorer NOT richer.

Disturbing trend.

Second point and important! This article completely left out all the tax deduction loopholes which benefit more and more as your income goes up more and more.

Taxes are based on taxable income not gross income. It the taxes paid were measured against gross income then the numbers would be reversed dramatically and so called rich getting hammered woould likely be paying less that those with modest incomes.

If you make a 150K and your taxable income is 100k and you pay 25K in tax let's say.............then the tax on the gross is really 16%

If you make 20 and take the 5k standard deduction you pay tax on 15K ..........

get the drift buy a McMansion start a business take clients to dinner buy a big Lexus as business car write off ...write off the phones and the country club.........your paid tax advisor a home office part of the utility bill contribute 25K to your keogh and bingo you can easily make 200K and have 100K of taxable income which will lower the tax bill to 12% of gross.

The only people getting srewed by the tax system are the poorest of people who make enough to pay taxes.

Flat tax no deductions for nuttin........all earning of 20K pay 10% boom problem done and lot of overhead used to scam the system gets deleted....and uneeded

cept it will never happen..........cause of all the special interests and none of em are for the poor

notice I never mentioned republicans or democrats as this scam is enjpoyed as long as you make enough money to work the write offs

The 2005 total effective federal tax rate as a percentage of the 2000 rate:

Top Quintile = 91.1%
Fourth Quintile = 84.9%
Middle Quintile = 85.5%
Second Quintile = 76.2%
Bottom Quintile = 67.2%


This is the 3rd time I've posted that (showing that income taxes under Bush are actually MORE progressive than they were under Clinton), but dont worry, we'll still have several people tell us that the rich need to pay more because Bush's cuts were all for them. There is no limit to what the most productive Americans owe the rest of us or to what extent the government should make sure they pay it!

>>Flat tax no deductions for nuttin........all earning of 20K pay 10% boom problem done and lot of overhead used to scam the system gets deleted....and uneeded. cept it will never happen..........cause of all the special interests and none of em are for the poor
notice I never mentioned republicans or democrats as this scam is enjpoyed as long as you make enough money to work the write offs[/QUOTE]

Points well taken, Rich.

I prefer either the type of flat tax you suggest or the so-called 'Fair Tax' - in effect, a National Sales Tax on consumption.

Do away for the need for Philadelphia lawyers - wait..........politicians are Philadelphia lawyers - throw the IRS and its incredible overhead in the dumpster and get on with things.

If we were to enact either of the above, though, I believe it will be the lower-income folks and their advocates that would do the most screaming.

Let's do our annual income taxes on a post card.

I dont understand the point of this "debate". You make more you pay more regardless of who is president.

Truthfully its not the sub 40k bracket nor the 65k bracket and above. Its those combined income families caught in the middle which currently gets shafted by our current tax structure.

The sub 40k usually get some sort of "return" meaning they really dont contribute that much to the tax base.

The over 65k make enough yearly or have cpa's/financial planners divert money into different "vehicles" to either escape or differ taxes. They do contribute more and rightly so because they are not exactly "struggling" for BASIC necessities unless they are overextended.

Its the ones in the middle of those numbers give or take which have the most difficulties and the tax code needs restructured to be more fair for them.

The tax structure is set up to be fair, it is supposed to be on a sliding scale with the top end paying more and the lower end paying less to nothing. It needs to be adjusted not restructured. One our government spending and budget for things we have come to see as normal and necessities in this culture are extremely expensive. Two there will always be peope who use their ingenuity to find loop holes or tactics to make our tax code advantageous for themselves. That is normal and should be encouraged as long as it does not border on criminal.

What would be completely unfair as some as proposed is a flat tax system because those initially who already have more would be able to leverage that to make far more than those who have less. The sliding scale is imperfect but it is certainly fair in theory. Adjusting here and there for the middle class income levels is what we should be focusing on.

>>The over 65k make enough yearly or have cpa's/financial planners divert money into different "vehicles" to either escape or differ taxes. They do contribute more and rightly so because they are not exactly "struggling" for BASIC necessities unless they are overextended.>>

Try living in CT on a household income of $65K. Sorry.......gotta run...my financial advisor is on the other line.

well ok you got me there, adjust the numbers accordingly to the cost of living in each area.