U.S. tax burden falling more on wealthy people
Tuesday, April 9, 2002
WASHINGTON -- Another way the rich are different: They pay the lion's share of the nation's income tax bill. The wealthiest 5 percent pay more than half the taxes, while people in the bottom half pay just 4 percent.
The annual federal tax deadline for most of America is next Monday.
Two-income households are increasing, putting more families in the top slice of taxpayers. Millions of small businesses and partnerships are up there, too, paying personal instead of corporate income taxes. Many other people were boosted by the 1990s stock market boom.
President Bush's big tax cut will prevent the wealthy from paying an even greater share in coming years. But key provisions, such as the gradual doubling of the child tax credit, will reduce or eliminate income taxes for many middle-income people while the rich won't qualify.
"This trend is not going to reverse," said Scott Hodge, executive director of the Tax Foundation, a nonpartisan tax education and research group. "This will be the demographic for the 21st century taxpayer."
For 1999, the most recent year for which complete Internal Revenue Service statistics are available, 6.3 million taxpayers whose incomes were in the top 5 percent paid more than 55 percent of all income taxes. They had incomes above $120,846 a year -- meaning two spouses could each earn a bit over $60,000 and be considered among the nation's richest.
"It's very easy to move into the top echelon of taxpayers," Hodge said.
The wealthiest 1 percent -- those earning $293,415 and up -- paid over a third of the taxes, while their share of the nation's taxable income was 19 percent. They pay income taxes at the top rate, now 38.6 percent, compared with a maximum rate of 15 percent for the majority of lower-earning taxpayers.
Taxpayers in the bottom half paid only 4 percent of the income taxes in 1999, according to the IRS. These 63 million taxpayers earned, on average, less than $26,415 a year.
Going back to 1989, the top 5 percent income group paid about 44 percent of income taxes, the bottom almost 6 percent. At that time, the top tax rate paid by high earners was 31 percent.
Going up to 59 percent
Looking ahead, the 10-year, $1.35 trillion tax cut enacted last year reduces income taxes in three steps, with the final step coming in 2006. In that year, according to the congressional Joint Committee on Taxation, taxpayers earning over $100,000 a year will pay almost 59 percent of all income taxes.
Those with annual incomes of less than $30,000 a year will pay about 4.4 percent in 2006, roughly the same as they do today.
In Congress, this disparity in the tax burden causes perennial political trouble for Republican tax-cutters because any across-the-board reduction meets with Democratic criticism that it would mainly benefit the wealthy while siphoning away money for government programs.
For that reason, many tax breaks contain income cutoff points that leave out the top income earners.