With the political conventions fast approaching and the presidential election right around the corner, what better time to take a fresh look at how the nation’s tax bill is distributed among its citizens?
After all, no matter what the conditions – war or peace, prosperity or recession – no issue seems to get under voters’ skin more or command more attention from politicians than whether taxes will rise or fall and, frankly, whose ox will be gored.
New statistics from the Internal Revenue Service show that the highest-earning 1% of taxpayers in America make 22.06% of all income reported to the government. That’s almost twice the 12.51% of total income earned collectively by the lowest-earning 50% of workers. Yes, 1.4 million taxpayers claim 22% of income earned while 68 million share just 12.5%.
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But get this: When it comes to taxes paid, an even wider discrepancy shows itself -- in reverse. That top 1% of earners pay 39.89% of all the federal individual income taxes. The bottom 50% of earners pay just 2.99% of those taxes.
These income and tax burden breakdowns come from information reported on 2006 individual income tax returns, the latest which have been analyzed by the government. Income categories are based on adjusted gross income (AGI), which is basically salary plus investment, rental and business income minus investment losses and expenses such as alimony paid, contributions to retirement plans, moving expenses and a few other costs.
This is the first time that the bottom half of taxpayers paid less than 3% of the total income tax bill. (Note that these figures include only federal income taxes. According to one study, 56% of all wage earners pay more in Social Security and Medicare taxes than they do income tax and the percentage soars to 86% if you count both the employer and employee share of those taxes.)
In 1986, the top 1% of earners reported 11% of all income and paid 26% of the income taxes; the lower-earning 50% made 17% of the income and paid 6% of the nation’s individual income tax bill.
How Does Your Income Stack Up?
The data also make it easy for you to know how your income stacks up against your fellow citizens. The newly-released numbers show that an income of $31,987 or more puts you in the top half of taxpayers. Earning a bit more than twice that much -- $64,702 -- earns you a spot among the top 25% of all wage earners. You crack the elite top 10% if you earn more than $108,904.
And $388,806 buys top bragging rights: Earn that much or more and you're among the top 1% of all American earners.
Kiplinger has developed an on-line calculator to quickly show you -- based on your personal AGI -- which income category you fall in and what percentage of the nation’s tax burden is borne collectively by you and your fellow citizens in that income category. (See your Taxpayer Ranking.)
The following table shows the income categories and the percentage of income earned and tax burden paid by each category.
| BREAKDOWN OF INCOME AND TAXES PAID BY CATEGORY | |||||||||
| Income Category | 2006 AGI | Percent of All Income | Percent of Income Taxes Paid | ||||||
| Top 1% | Over $388,806 | 22% | 40% | ||||||
| Top 5% | Over $153,542 | 37% | 60% | ||||||
| Top 10% | Over $108,904 | 47% | 71% | ||||||
| Top 25% | Over $64,702 | 66% | 86% | ||||||
| Top 50% | Over $31,987 | 87% | 97% | ||||||
| Bottom 50% | Under $31,988 | 13% | 3% | ||||||
Source: IRS
