What Do Americans Really Pay in Income Taxes?

November 29, 2012

Tax Rate Paid by Top 1% Is Double National Average

Washington, D.C., November 29, 2012—The average federal tax rate for all taxpayers rose slightly in 2010 to 11.81 percent, up from 11.06 percent the previous year. The tax rate paid by individuals with incomes in the top 1 percent averaged 23.39 percent, while all filers in the bottom 50 percent paid an average tax rate of 2.37 percent, according to a new Tax Foundation analysis.

A tepid economic recovery caused incomes and taxes paid for all income groups to increase slightly in 2010, but well short of the levels achieved during the boom years of 2006 and 2007.

Average tax rates increased in 2010 for all except the top 1 percent, who saw a slight decrease from 24.05 percent of income in 2009 to 23.39 percent in 2010. This is about 10 times the tax rate of the bottom 50 percent of filers. Tax rates for all filers have dropped since 2001, but have done so most precipitously for low-income households. The bottom 50 percent of filers paid 4.92 percent of their income in 2001, more than twice the rate they paid in 2010. In contrast, the top 1 percent of filers paid 27.6 percent of their income in 2001, which is about 4 points higher than their 2010 rate.

“Incomes have stagnated for low-income households in recent years, but this is true for high-income households as well,” said Tax Foundation chief economist William McBride. “In inflation-adjusted terms, the income thresholds for all groups – including the top 50 percent, the top 1 percent, and the top 0.1 percent – are lower than they were in 2001.”

In 2010, the top 1 percent of tax returns included 18.87 percent of all adjusted gross income and 37.38 percent of all federal individual income taxes paid. The top 5 percent earned 33.78 percent of income and paid 59.07 percent of taxes, and the top 10 percent earned 45.17 percent of income and paid 70.62 percent of taxes.

The Tax Foundation’s analysis is based on new individual income tax data from the Internal Revenue Service, reporting on calendar year 2010. This year the IRS changed its methodology to exclude dependent filers and include returns with negative adjusted gross income. For comparison’s sake, the new data is presented as far back as the IRS provides, to 2001, with the discontinuity noted for prior years.

Tax Foundation Fiscal Fact No. 343, “Summary of Latest Federal Individual Income Tax Data,” by chief economist William McBride is available here.

The Tax Foundation is a nonpartisan research organization that has monitored fiscal policy at the federal, state and local levels since 1937. To schedule an interview, please contact Richard Morrison, the Tax Foundation’s Manager of Communications, at 202-464-5102 or morrison@taxfoundation.org.

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