In fiscal year 2023, the U.S. government collected about $4.7 trillion in total revenue, with roughly half ($2.35 trillion) derived from the much-maligned personal income tax.
We don性视界传媒檛 have a detailed breakout yet, but the Tax Foundation recently released an analysis of individual income return statistics from the Internal Revenue Service for 2021. Given the attention that taxes always manage to muster in election season and our current fiscal excesses, it性视界传媒檚 worth a brief review.
The U.S. income tax system is progressive, meaning that those with higher incomes pay more in both absolute and percentage terms. The bottom 50 percent of taxpayers (those making less than about $46,600) paid an average of 3.3percent of their incomes, while the top 1 percent paid 25.9 percent.
The top 1 percent of taxpayers had adjusted gross income of $682,600 or more and paid an average of $653,700 in income tax. The top 5 percent earned at least $252,800 and paid an average of about $187,500 in taxes, with the top 10 percent earning at least $169,800 and paying almost $108,300. The top 10 percent of income levels pay 75.8 percent of income taxes, with the top 50 percent paying 97.7 percent.
A common refrain during political season is that the top 1 percent of taxpayers don性视界传媒檛 pay a fair share. About 1.5 million returns comprised this echelon; they paid 45.8 percent of total income taxes (more than $1 trillion). The very highest earners (the top 0.1 percent which have at least $3.8 million in income) paid $542 billion, or 24.7 percent of the total collected.
The share paid by those with high adjusted gross incomes is large and rising. Moreover, refundable tax credits (which are distinct from refunds due to withholding exceeding the amount owed) result in millions of people actually receiving money from the IRS.
Thus, while (1) some wealthy individuals are certainly able to exploit quirks in the system to reduce their liability and (2) payroll taxes and other revenue sources increase the overall share borne by those in lower brackets (particularly workers), the income tax generally achieves its objective of being a progressive source of federal revenue.
A key reason for accurately evaluating income taxes is to avoid mistakes as we seek to put the country on a path toward long-term financial sustainability amidst spiraling debt and deficits.
Much of the often-heated rhetoric is simply not true, and, thus, not productive. From an economic perspective, taxes should be structured to maximize efficiency and cause the least disincentive to productive activity. They should also be equitable.
We are approaching a time when the U.S. must get its fiscal house in order with respect to both revenue and spending, and we would all be well-served to do so from a position of knowledge.
