New IRS Data Show Top 1 Percent’s Share of Income and Income Taxes Paid at All-Time High in 2006

July 18, 2008

Gerald Prante

Gerald Prante

The Tax Foundation has updated its annual summary of the latest federal income tax data given that the IRS has released the percentile data early this year (July as opposed to September).

The basic story that comes from this newly available data for tax year 2006 is that the share of income (as measured by AGI) and the share of taxes paid by the top 1 percent of tax returns are once again at all-time highs.

In 2006, the top 1 percent of tax returns paid 39.9 percent of all federal individual income taxes and earned 22.1 percent of adjusted gross income, both of which are significantly higher than 2004 when the top 1 percent earned 19 percent of adjusted gross income (AGI) and paid 36.9 percent of federal individual income taxes. In 1990, those figures were 14 percent and 25.1 percent, respectively.

The latest summary of IRS data is available here: http://www.taxfoundation.org/legacy/show/250.html

By one measure of tax progressivity (the ratio of taxes paid to income earned for the top 1 percent of tax returns), progressivity has declined since 1993, but remained relatively unchanged since 2000 and since 1990. Note that under a pure flat tax (on AGI), the ratio would be 1. The higher the number, the greater the progressivity.

Tax Year Ratio of Tax Share to AGI Share
1990 1.795
1991 1.911
1992 1.935
1993 2.104
1994 2.091
1995 2.073
1996 2.014
1997 1.909
1998 1.881
1999 1.854
2000 1.798
2001 1.933
2002 2.091
2003 2.044
2004 1.942
2005 1.858
2006 1.808

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A 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.

An income tax is referred to as a “flat tax” when all taxable income is subject to the same tax rate, regardless of income level or assets.

An individual income tax (or personal income tax) is levied on the wages, salaries, investments, or other forms of income an individual or household earns. The U.S. imposes a progressive income tax where rates increase with income. The Federal Income Tax was established in 1913 with the ratification of the 16th Amendment. Though barely 100 years old, individual income taxes are the largest source of tax revenue in the U.S.

Adjusted gross income (AGI) is a taxpayer’s total income minus certain “above-the-line” deductions. It is a broad measure that includes income from wages, salaries, interest, dividends, retirement income, Social Security benefits, capital gains, business, and other sources, and subtracts specific deductions.