Top 1% Pay More in Federal Income Taxes than Bottom 90%


NEW YORK (MainStreet) — There's still a box of Christmas decorations at the bottom of the stairs waiting to be carried up to the attic – and already the tax trauma has begun. It's like the Christmas creep to mid-October. The New Year's Eve champagne has barely lost its bubbles, and already it's tax season.

To put you in the mood to tackle your 1040, consider this fact: the top 1% of taxpayers pays more in federal income taxes than the bottom 90%. Since the early 1980s, the share of taxes paid by the bottom 90% has steadily declined, according to the Tax Foundation, the tax policy think tank.

A recent report by the non-partisan research group reveals that in 1980, the bottom 90% of taxpayers paid a little more than half (50.72%) of all income taxes. In 2011 (the most recent year the data are available), the bottom 90% paid just under a third (31.74%) of taxes. In contrast, the top 1% paid 19% of taxes in 1980 and now pays just over 35% of federal income taxes.

"An interesting piece of information is that after the [2003] Bush tax cuts, often claimed to be a tax cut for the rich, the tax burden of the top 1% actually increased significantly," the Tax Foundation says. "One reason for the decline in the bottom 90%'s tax share is likely the proliferation of tax credits. In the last 30 years, the number of tax credits has increased -- specifically refundable tax credits. The combined cost of refundable and standard tax credits has gone from around $20 billion in 1990 to $176 billion in 2010, with refundable credits accounting for about $100 billion of that growth."

The report says that relying on a small base of taxpayers to assume an increasing share of the national tax burden exposes a basis weakness of the tax code.

"Tax structures that rely on such a small base (specifically a small income tax base) are more susceptible to the ups and downs of the economy," the group claims. "The best solution would be to shift away from a tax code that punishes high-earners, savings, and investment and towards a tax code that collects revenue from a consumption base, which provides more stable revenue and mitigates the current code's bias against savings, investment, and, correspondingly, economic growth."

The Tax Foundation says the top 50% of income earners paid 97% of all taxes in 2011.

--Written by Hal M. Bundrick for MainStreet

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