The top 1 percent of taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. payers pay more in federal income taxes than the bottom 90 percent. As you can see in the chart below, this is a stark change from the 1980s and early 1990s. But since the early 1980s, the share of taxes paid by the bottom 90 percent has steadily declined.
In 1980, the bottom 90 percent of taxpayers paid 50.72 percent of income taxes. In 2011 (the most recent year the data is available), the bottom 90 percent paid 31.74 percent of taxes. On the flip side, the top 1 percent paid 19.05 percent of taxes in 1980 and now pay 35.06 percent of taxes.
An interesting piece of information from the chart below is that after the 01/03 Bush tax cuts, often claimed to be a tax cut for the rich, the tax burden of the top 1 percent actually increased significantly.
One reason for the decline in the bottom 90 percent’s tax share is likely the proliferation of tax creditA tax credit is a provision that reduces a taxpayer’s final tax bill, dollar-for-dollar. A tax credit differs from deductions and exemptions, which reduce taxable income, rather than the taxpayer’s tax bill directly. s. In the last 30 years, the number of tax credits has increased, specifically refundable tax creditA refundable tax credit can be used to generate a federal tax refund larger than the amount of tax paid throughout the year. In other words, a refundable tax credit creates the possibility of a negative federal tax liability. An example of a refundable tax credit is the Earned Income Tax Credit. s. The combined cost of refundable and standard tax credits has gone from around $20 billion in 1990 to $176 billion in 2010, with refundable credits accounting for about $100 billion of that growth.
Beyond the unfairness of saddling an increasingly smaller number of taxpayers with an increasingly larger percentage of the tax burden (the top 50 percent of income earners paid 97 percent of all taxes in 2011), there are basic government finance issues with such a tax code. Tax structures that rely on such a small base (specifically a small income tax baseThe tax base is the total amount of income, property, assets, consumption, transactions, or other economic activity subject to taxation by a tax authority. A narrow tax base is non-neutral and inefficient. A broad tax base reduces tax administration costs and allows more revenue to be raised at lower rates. ) are more susceptible to the ups and downs of the economy.
The best solution would be to shift away from a tax code that punishes high-earners, savings, and investment and towards a tax code that collects revenue from a consumption base, which provides more stable revenue and mitigates the current code’s bias against savings, investment, and, correspondingly, economic growth.
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