What the Top 1% Really Pays the IRS

They kick in 40.4% of income taxes, nearly double their income share

WSJ editorial.

"Here’s a statistic to remember next year, as Congress debates extending President Trump’s 2017 tax cuts: The top 1% of income-tax filers provided 40.4% of the revenue in 2022, according to recently released IRS data. The top 10% of filers carried 72% of the tax burden. Self-styled progressives will never admit it, but U.S. income taxes are already highly progressive.

These figures are from the Tax Foundation’s analysis of the IRS data, which is worth a read. But allow us to highlight a few points, starting with why this matters for the political debate. The GOP’s 2017 law lowered tax rates on people across the income spectrum, and those changes expire at the end of 2025. Extending today’s top marginal rate on high earners, 37%, will be contentious. Democrats will want to let it revert to the old 39.6%. Mr. Trump, scrounging to pay for other priorities, might go along.

The Democratic refrain will be that keeping the current 37% top rate would be a giveaway to millionaires and billionaires who don’t pay their “fair share,” as Bernie Sanders likes to say. That’s when readers can whip out the IRS data and point out that more than 40% of income-tax revenue is already coming from one filer out of every 100. To understand the 2022 numbers in greater detail, let’s break them out by cohort.

The top 1%: This group includes 1.5 million tax returns with adjusted gross incomes (AGI) above $663,000. These people made up 22.4% of the country’s total reported earnings, yet their share of income taxes paid was nearly double that at 40.4%.  Their average federal tax rate was 26.1%. 

To put this in Bernie’s terms, is paying two times more in taxes than your share of income “fair”? We’d say it’s closer to punitive, especially since many of these taxpayers are “rich” for only a narrow window of their highest-earning years.

Between the top 1% and 5%: About 6.2 million returns above $262,000 but below $663,000. These people had 15.9% of total earnings, while contributing 20.6% of income-tax revenue. Average tax rate: 18.8%.

Between the top 5% and 10%: About 7.7 million returns above at least $179,000 but below the previous the top 5%. Their share of earnings, 11.1%, almost matched their share of taxes paid, also 11%. Average tax rate: 14.3%.

Between the top 10% and 25%: About 23.1 million returns above at least $100,000. Share of income: 20.5%. Share of tax: 15.2% Average tax rate: 10.7%.

Between the top 25% and 50%: About 38.5 million returns above at least $50,000. Share of income: 18.6%. Share of tax: 9.9%. Average tax rate: 7.7%.

The bottom 50%: About 76.9 million returns with earnings under $50,000. Share of income: 11.5%. Share of tax: 3%. Average tax rate: 3.7%.

Add all this up, and the top quarter of earners reported 69.9% of all income in 2022 but paid 87.2% of all income taxes. Despite the 2017 reform’s modest cuts in individual tax rates, the tax code continues to soak the upper middle class as well as the rich. And this doesn’t include state and local tax rates.

***

Two other notes on the data: First, these figures overstate the actual income-tax burden shouldered by the bottom 50%, because “refundable” credits paid to those with no tax liability are treated as spending and aren’t reflected in the IRS numbers. This means tens of millions of Americans have income-tax rates that are effectively negative—that is, they get what amounts to a welfare check from the government.

Second, these numbers only cover the income tax. The IRS figures don’t include payroll taxes on workers with lower earnings, including to support Medicare and Social Security. But other analyses show that although including payroll taxes somewhat modifies the progressivity of the tax code overall, the basic picture doesn’t change.

Given the data, it ought to be impossible to pretend that the top 1% is somehow getting a free ride. The exact share of income taxes paid by the 1% moves somewhat from year to year and with changing economic conditions. During the pandemic year of 2021 it hit 45.8%. That’s an outlier, but the trend over recent decades is clearly up. (See the nearby chart.)

One reason Democrats love the “fair share” language is that they can use the phrase without ever defining it. Democrats who know anything about the tax system understand this, but they don’t care because taxing the rich polls well. They’d gladly tax the rich at 100% if they could get away with it. Republicans were once willing to tell this truth, but these days too many of them want to play the same game."