New Data: Top 1% Pay Greater Dollar Amount in Income Taxes to Federal Government than Bottom 90%

October 04, 2007

Data also show incomes growing across all percentile groups

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Washington, DC, October 4, 2007 - New data released by the IRS today offers interesting insights into the distributional spread of the federal income tax burden, new analysis by the Tax Foundation shows.

Summary of Federal Individual Income Tax Data, 2005 (updated October 2007)

Number of Returns

AGI

($ millions)

Income Taxes Paid

($ millions)

Group's Share of Total AGI

Group's Share of Income Taxes

Income Split Point

All Taxpayers

132,611,637

$7,507,958

$934,703

100.00%

100.00%

-

Top 1%

1,326,116

$1,591,711

$368,132

21.20%

39.38%

above $364,657

Top 5%

6,630,582

$2,683,934

$557,759

35.75%

59.67%

above $145,283

Top 10%

13,261,164

$3,487,010

$657,085

46.44%

70.30%

above $103,912

Top 25%

33,152,909

$5,069,455

$803,772

67.52%

85.99%

above $62,068

Top 50%

66,305,819

$6,544,824

$906,028

87.17%

96.93%

above $30,881

Bottom 50%

66,305,818

963,134

28,675

12.83%

3.07%

below $30,881

Source: IRS

The table above shows that the top-earning 25 percent of taxpayers (AGI over $62,068) earned 67.5 percent of nation's income, but they paid more than four out of every five dollars collected by the federal income tax (86 percent). The top 1 percent of taxpayers (AGI over $364,657) earned approximately 21.2 percent of the nation's income (as defined by AGI), yet paid 39.4 percent of all federal income taxes. That means the top 1 percent of tax returns paid about the same amount of federal individual income taxes as the bottom 95 percent of tax returns.

The IRS data also shows increases in individual incomes across all income groups. Just as the highest earners lost the biggest percentage of their incomes during the recession of 2001, so they have prospered the most as the economy has continued to rebound. In sum, between 2000 and 2005, pre-tax income for the top 1 percent group grew by 19.1 percent. In the same time period, pre-tax income for the bottom 50 percent increased by 15.5 percent.

This pattern of income loss and growth at the top of the income spectrum is the same during every recession and recovery. The net result has also been a sharp rise in federal government tax revenue from 2003-2005 compared to previous years.

Including all tax returns that had a positive AGI, those taxpayers with an AGI of $145,283 or more in 2005 constituted the nation's top 5 percent of earners. To break into the top 1 percent, a tax return had to have an AGI of $364,657 or more. These numbers are up significantly from 2003 when the equivalent thresholds were $130,080 and $295,495. Top incomes in 2005 are also continuing to surpass the peak they reached in 2000. At the height of the boom and bubble, $313,469 was the threshold to break into the top 1 percent, and then it fell to $285,424 in 2002 only to finally recover fully last year.

The IRS data includes all of the 132.6 million tax returns filed in 2005 that had a positive AGI, not just the returns from people who earn enough to owe taxes. From other IRS data, we can see that 90.6 million of the tax returns came from people who paid taxes into the Treasury. That leaves 42 million tax returns filed by people with positive AGI who used exemptions, deductions and tax credits to completely wipe out their federal income tax liability. Not only did they get back every dollar that the federal government withheld from their paychecks during 2005; but some even received more back from the IRS. This is a result of refundable tax credits like the Earned Income Tax Credit, which are not included in the aggregate percentile data here.

View the full study, Summary of Latest Federal Individual Income Tax Data, here.

The nonpartisan, nonprofit Tax Foundation has monitored tax policy at the federal, state and local levels since 1937. Best known for its annual calculation of Tax Freedom Day®, the Tax Foundation is a nonprofit, nonpartisan 501(c)(3) organization.

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