One of the most often heard cries in political circles, particularly as we enter another election season, is to tax the rich. Make them pay their fair share. Seems like that is certainly the right thing to do, doesn’t it?
Well, I thought it might be interesting to look at who actually pays the most income taxes. This information is taken from www.taxfoundation.org, and is a summary of www.irs.gov/taxstats.
First a quiz for you:
How much AGI (Adjusted Gross Income) does it take to rank in the top 1% of US taxpayers?
How about the top 5%?
The top 10%?
The top 25%?
The answers might surprise you. The amount of AGI to be in the top 1% is $343,927. They pay 36.7% of all income taxes
AGI for the top 5% is $154,643; they pay 20.46%. So the top 5% pay 57.2% of all income taxes.
AGI for the top 10% is $112,124; they pay 18.05%. So the top 10% pays 76.2 of all income taxes.
AGI for the top 25% is $67,289; they pay 14.68%. So the top 25% pays nearly 91% of all income taxes.
The bottom 75% of tax payers, pay a total of less than 10% of all income taxes. So the “rich” need to pay their fair share!!! Really???
Here’s a little something to watch out for as the political rhetoric heats up. It is the easiest way for politicians to raise more taxes. The amount of income tax you and I must pay can be greatly increased, without raising tax rates one bit, or eliminating deductions. How? Simply be changing the “tax threshold” levels. What’s that? The breakpoints where tax rates change.
For example, to be in the top bracket of 35% currently, requires an income of $379,150. However, back in 1992, the top bracket was only 31%, but anyone making over $86,500 was in the top bracket. In 1990, the top rate was only 28%, but the top bracket was reached with income of $32,450.
So, politicians could “slash taxes” by reducing the tax rates, but dramatically increase total tax revenues by simultaneously reducing the brackets. What if the top rate was reduced from 35% to maybe 25%, but the top bracket was reduced from $379,150 to maybe $100,000? Even though your tax rate was reduced, your total tax due would probably increase dramatically. Just some food for thought.
I have ideas to help you possibly lower your taxes; can I buy you a cup of coffee to discuss?
Ken Kendall is the owner of Kendall Financial LLC, a Flower Mound-based Financial Planner. Contact Ken at 972-874-8757 or