I am wondering if, in theory, the upper quintile (20% of earners in the U.S.) could pay the annual federal tax bill for all quintiles from their annual income? I have been looking at 2013 CBO data here that shows quintile income as a percentage of total income and quintile taxes paid as a percentage of total taxes paid. What's necessary is the amount of total income and total federal taxes paid - does anyone know these values?
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2 Answers
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Here is the latest report of the Congressional Budget Office on federal taxes by households. The main result you are looking for is this one (page 31):
The "Federal Taxes" row shows that the upper quintile tax bill is higher than the tax bill of the other four quintiles combined. (the data are averages but each quintile has same number of households so those numbers are enough to conclude this).
The figure below show this more clearly, in percentage terms:
Check here for older reports.
PS: amazingly, the top quintile gets more government transfers than the poorest quintile, which get the lowest. An entirely regressive system!
answered Apr 4, 2017 at 9:55
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$\begingroup$ thank you - it seems that on average households from the highest quintile would have about $165,000 left over after paying the taxes for all quintiles. Do you agree? $\endgroup$ Apr 4, 2017 at 17:14
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$\begingroup$ How did you calculate that number? I get a different one. (if the answer solved your question, don't forget to mark it as solved) $\endgroup$ Apr 4, 2017 at 18:25
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$\begingroup$ I summed the average amounts of federal taxes for each 20%, which is roughly 100K and subtracted this from the before-tax income for the highest 20%, which is 265K, leaving $165,000. I think it would be most interesting to see how small a percentage of the upper incomes would be able to comfortably cover the taxes for all the rest. $\endgroup$ Apr 5, 2017 at 1:22
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$\begingroup$ @BagPipeMusic Oh, I see now. Yet, that is a roughly correct calculation in my opinion. Good insight, btw. The rich paying all the rest of society's income, are still two times better of than the next quintile, and 8 times better than the bottom quintile (after taxes). $\endgroup$ Apr 5, 2017 at 8:46
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$\begingroup$ Thank you, @luchomacho. I'll let you know what I can find out in terms of how small a percentage will work. It doesn't look like there's a messaging facility here between users, so I'll update here. $\endgroup$ Apr 5, 2017 at 19:39
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Following up on the above answer, filing season statistics from the IRS, show that less than the top 1% of earners have the ability to pay the country's personal income tax bill from their yearly earnings.
When I asked the above question, I didn't know how the total amount of personal income tax owed by everyone would compare to sums earned by different groups.
So, now, while the links above reveal that fewer than the top 1% could pay the nation's bill from their yearly earnings, there wouldn't be much left over.
A more relevant question is: what group could pay everyone's personal income tax from its yearly earnings and still be the highest earning group?
Using the same filing season statistics, the data shows that for the past 7 years, the percentage of top earners with the latter ability varies from about the top 5.6% of earners in 2015 to the top 1.4% of earners in 2012.
To illustrate how these values are calculated, below is the November 2013 data containing income tax return information for income earned in 2012 primarily.
An few important points are that this information is for tax returns which can be for a single earner or two earners. Also, dollar amounts are in thousands as the table heading shows. Finally, to conserve space, I abbreviated Adjusted Gross Income as AGI and had to do some other editing.
Cumulative 2013 Filing Season Information for Tax Returns Processed by the IRS Through November 21, 2013 [Money amounts are in thousands of dollars] Size of AGI # of returns AGI Income Tax Total 145,091,418 8,975,566,289 1,177,421,480 No AGI 2,586,825 (191,371,268) 1,001,326 $1 under $5,000 10,642,587 27,494,791 72,522 $5,000 - $9,999 12,097,923 91,880,435 427,515 $10,000 - $14,999 12,440,450 155,570,995 1,804,904 $15,000 - $19,999 11,541,160 200,981,089 3,870,826 $20,000 - $24,999 10,027,087 225,038,715 6,498,966 $25,000 - $29,999 8,708,609 239,020,621 9,203,542 $30,000 - $39,000 14,278,866 496,331,842 25,224,694 $40,000 - $49,999 10,878,331 487,141,721 31,016,143 $50,000 - $74,999 19,045,531 1,171,648,022 95,431,989 $75,000 - $99,999 12,094,113 1,046,369,468 99,386,182 $100,000-$199,999 15,520,684 2,082,100,613 264,731,862 $200,000-$249,999 1,827,917 405,798,871 68,143,041 $250,000-$499,999 2,324,671 776,719,823 162,994,753 $500,000-$999,999 693,078 469,167,322 12,665,726 $1M under $1.5M 166,602 201,290,220 49,419,094 $1.5M under $2M 70,348 121,099,557 29,792,330 $2M under $5M 104,278 310,524,159 75,659,345 $5M under $10M 25,840 177,029,891 41,433,068 $10M or more 16,518 481,729,403 98,643,651 NOTE: Table presents information from the population of all Forms 1040 processed by the IRS on or before week 47 of the calendar year. Returns filed primarily reflect income earned in 2012. For more information on this data series, see http://www.irs.gov/uac/Filing-Season-Statistics. Source: Statistics of Income, IRS.
The total amount of personal income tax due in 2012 was about 1.2 trillion dollars. The total Adjusted Gross Income for tax returns with an AGI of 500,000 or more for the year was about 1.8 trillion dollars. Subtracting 1.2 trillion from 1.8 trillion is 0.6 trillion or 600 billion dollars.
The total number of returns with AGI greater than 500,000 was about 1.1 million. Dividing 600 billion by 1.1 million gives roughly 545,000 dollars per return, which is more than any other group's AGI.*
The latter group of returns is 0.7% of the total number of returns and because returns can be joint, I suggested that the number of earners could be double that amount or 1.4%.
*To refine the definition of the group for 2012, it seems the next step would be estimating how the 693,078 returns with an AGI between 500,000 and 999,999 dollars for the year are distributed within that range. Then, based on that distribution, returns making up the high-earning group could be redefined by raising the lower boundary for the group to perhaps 600,000. The latter steps need to be made to avoid assigning the group average (545,000 presently) to returns with an AGI less than the group average (between 500,000 and 544,999 dollars in the current scenario).