Higher income earners do indeed pay higher income tax rates

Bad Tax Math
by Sean Hackbarth

There are those who think it'd be just fine to raise taxes on the "rich" and that the "rich" don't pay their "fair share." But it only shows that they need a refresher course in mathematics. In May, the Chamber's Chief Economist Dr. Martin Regalia looked at how income taxes are distributed and found higher income groups pay a disproportionately large share [emphasis mine]:

The [CBO] data show that the top 1% of all households paid 39.5% of total federal income tax while earning 19.4% of total income in the economy. The top 20% paid 86% of total income taxes while earning 55.9% of total income. The next quintile paid 12.7% of income while earning 19.3% of total income.

In contrast, the middle quintile paid only 4.6% of federal income taxes in 2007 on an income share of 13.1%. The second lowest quintile paid a negative 0.3%, that is, they actually got money back from the government. Their income share was 8.4%. The lowest quintile also had a negative tax liability of 3% and an income share of 4%. Thus, it is easy to see that our current tax code is highly progressive, and that the higher income groups actually pay more than their “fair” share.

Regalia found that even when all federal taxes are included, our tax system is still highly progressive:

The data show that the top 1% of all households paid 28.1% of total federal tax liabilities. Moreover, this percentage of taxes paid has grown consistently over the years. The top 20% paid 68.9% of total federal taxes. The next quintile paid 16.5%.

The middle quintile paid only 9.2% of federal taxes in 2007. This was a lower tax bite than they experienced in 2000 and has consistently declined since 1979. The second quintile paid 4.4%, while the lowest quintile paid only 0.8%.

Regalia's observation lines up well with this AP fact check that shows higher income Americans pay higher effective income tax rates:

In 2009, taxpayers who made $1 million or more paid on average 24.4 percent of their income in federal income taxes, according to the IRS.

Those making $100,000 to $125,000 paid on average 9.9 percent in federal income taxes. Those making $50,000 to $60,000 paid an average of 6.3 percent.

Even if a "Buffett Rule" was enacted to "soak the rich," the revenues raised wouldn't be enough to fill the hole in the federal budget deficit. And to really "get the rich," the Wall Street Journal editorial board notes, taxes on capital gains and dividends would have to go up, making it more costly to save and invest.

Instead of raising taxes on a certain group of Americans, how about enacting comprehensive tax reform that lowers rates, broadens the tax base, and fosters growth, competitiveness, innovation, and job creation?

Anyway you look at it, socking it to high income earners–many of whom are small business owners–doesn't add up to job creation, more investment, and a more competitive United States.