Tax Facts

Should five percent appear too small
Be thankful I don't take it all
--The Beatles

Tax data can be sliced and diced in myriad ways, and sometimes its hard to fact from misinformation. This article presents data from 2008 tax info that support some generalizations when it comes to tax payments.

AGI / %AGI paid in income tax
$1+ million / 23.3%
$100K- $200K / 12.7%
$30K - $50K / 7.2%

This is the essence of a 'progressive' tax code. In 2008, those earning $30-50K (such as Warren Buffet's infamous 'secretary') paid taxes at less than one third of the rate paid by millionaires.

As the data suggest, generalizations proposed by Buffet and subsequently President Obama that lower income brackets pay higher tax rates than rich people is just plain nonsense.

Parenthetically, Buffet's argument leads a reasoned person to conclude that the solution to any differential tax rate paid is a flat tax system where all pay the same rate.

Buffet's analysis would have been more transparent if he had more explicitly dealt with the taxation of capital gains and dividends, from which the wealth derive the bulk of their income. Benefits from capital gains and dividends depend on corporate profits, which are taxed at the corporate levels before they are further taxed when reported on individual 1040s. The double taxing of incomes here means that total taxes paid on capital gains and dividends is much higher than Buffet's analysis suggests.

Finally, let's look at the overall share of federal income tax revenues:

top 1% of income earners / 38% of total federal income tax paid
top 10% of earners / 70% of taxes paid
top 50% of earners / 97% of taxes paid

By inference, the bottom 50% pay 3% of total federal taxes on individual income.

Higher standard of living demands increased productivity. Increased productivity requires capital investment. Capital investment requires savings. Savings requires putting aside some income rather than consuming it.

In a country where savingsa are already scarce, these tax policies paint a sober picture of tomorrow.