The IRS has released tax data for the 2019 tax year, and they show what IRS tax data always show: The federal income tax is already very progressive.
From a National Taxpayers Union Foundation (NTUF) report:
This latest release of IRS data shows that the top 25 percent of earners paid nearly 87 percent of all income taxes in 2019. Lower income earners are largely spared from income taxes with the bottom 50 percent of earners owing just three percent of the national share.
Politicians talk of people paying their fair share in taxes. What counts as fair is subjective, and part of the job of legislatures is to decide how people ought to be taxed. Many congresses over many years have made our federal income tax very progressive, and it remains that way today.
If there were 100 people in the U.S., the one guy in red would pay 39 percent of all income taxes by himself. The four guys in orange would pay 21 percent of all income taxes. That means just five people are paying 60 percent of all federal income taxes for the entire group of 100.
The remaining 40 percent is split among the other 95 people. But even there, it’s still progressive. Fifty of those 95 people are only paying 3 percent of the total.
And before you say, “Income inequality!” the results hold up when accounting for that as well. According to the IRS data, the guy in red makes 20 percent of the income for the group, but he pays 39 percent of the taxes. The 50 guys in dark blue combine for 11 percent of the income, but they pay 3 percent of the taxes.
This is exactly what you’d expect to see from a progressive income tax, which is what Congress has designed. When politicians complain about people not paying their fair share in taxes, it’s reasonable to ask, “Which people?” Is the guy in red not doing his part? The guys in orange? The guys in dark blue?
The 100-people visualization is also helpful in thinking about the broader-based, European-style income taxation that would be necessary to fund the European-style welfare state that some on the left want. To better spread the burden of taxation throughout the group of 100, the guys in gray would need to step up quite a bit. But look how much money they make. Those aren’t the kind of people you want to tax if you want a shot at getting elected.
Democrats know this, which is why President Biden had to promise during the campaign to not raise taxes on anyone making under $400,000 per year. But look at who that is. That means taking from the one guy in red and taking a little bit from one of the guys in orange to pay for government for all 100. That’s simply not going to work in the long run.
Democrats also run into the problems of what counts as middle-class. They say they don’t want to tax the middle class, but then they talk about a $400,000 income threshold. The middle of the IRS taxpayer distribution, defined as federal income taxpayers from the 25th percentile to the 75th percentile of income, would have an upper threshold of only $87,916. Most people would probably consider someone making, say, $95,000 to be middle-class, but the actual distribution would say that person is above the middle class.
Even the cutoff for the top 10 percent of taxpayers is $154,589. That’s doing very well, no doubt about it, and is safely above middle-class. But would we consider someone making $154,589 to be rich? He or she has an income higher than 90 percent of Americans.
From a conservative perspective, these data present a different challenge. On the one hand, our federal income tax has a tiny base and punishes success with large redistribution from the rich to the poor. On the other hand, most Americans really don’t pay that much in federal income tax. That’s great! This country overall has a low income tax, and that’s in large part because of conservatives who have fought to cut taxes and keep them low in the past few decades.
Of course, there are other taxes, plus state and local taxes as well, that complicate the picture. But as far as the federal income tax is concerned, the rich are already paying the lion’s share of the tax collections for the country. Most people don’t pay much at all. That’s a huge problem for supporters of big government.
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