Married Couples File Less Than Half of All Tax Returns, But Pay 74 Percent Of All Income Taxes
Fiscal Fact No. 4
Most married couples, especially those with children and a house in the suburbs, consider themselves distinctly middle-class. But according to IRS statistics, more than one out of every three married couples – 21 million in all – are statistically “rich,” with incomes high enough to put them in the top 20 percent of tax filers. Indeed, of those Americans in the top “quintile,” as it is known, 85 percent are married couples. By contrast, just 1 of every 7 single or non-joint filers is in the top income group.
At the other end of the income spectrum, 85 percent of those in the lowest group are single workers or non-joint filers, such as heads of household. As figure 1 below shows, single (or non-joint) filers dominate the lower-income groups while married couples (joint-filers) dominate the upper-income groups (or quintiles).
It goes without saying that since married couples comprise the lion’s share of “wealthy” Americans, they are paying the lion’s share of the income taxes. Overall, as figure 2 shows, married couples file less than half of all tax returns, yet they pay 74 percent of all the income taxes collected by Uncle Sam. Meanwhile, single people and heads of household file the other half of all tax returns, but pay just 24 percent of all income taxes.
These findings illustrate a major flaw in the standard “distributional analysis” used by many government and non-governmental organizations to measure the impact of tax legislation on taxpayers of different incomes. This analysis treats all of the roughly 130 million tax returns as though they were the same – regardless of whether the return is for a college graduate earning $40,000, a dual-income couple earning $80,000, “empty nesters” living off of their dividends, or a business owner declaring partnership income on her 1040.
This failure to account for the filing status of each taxpayer leads to bogus claims that “the rich are getting richer, while the poor are getting poorer” or that “the rich will get most of the benefits from the Bush tax cut plan.” The reality is that the demographics of American taxpayers have changed rapidly in recent years. Among the most significant changes is the dramatic increase in the number of dual-income, professional working couples. According to Census statistics, the number of dual-income married couples grew 22 percent from 1986 to 2000, from 25.4 million to 31 million. More than half of these couples (55 percent) have children under 18.
Meanwhile, there has been a similar rise in the number of workers who file tax returns, but get back every dollar that has been withheld during the year. In 1996, there were 29 million of these non-tax or zero-liability tax returns. This year, because of the expansion of the child credit and the Earned Income Credit, roughly 36 million tax returns will have no tax liability, a jump of 24 percent in just seven years.
It doesn’t take a genius to see that the rising class of married professionals look “rich” compared to millions who pay no income taxes. It also explains why these statistically “rich,” but otherwise middle-class couples are shouldering a greater share of the tax burden and, thus, will receive the largest share of the benefits of the President’s tax cut plan.