I saw a post asking about a wealth tax in California and the top response got me thinking.
Let's put some numbers to it. I'm going to keep things general for simplicity.
- The top 1% of US earners make 22.4% of all income in the US.
- The total amount of income reported in the US was approximately $23 trillion in 2023.
- The top 1% earned $5.15 trillion that year.
- The US revenue from income tax was approximately $2.23 trillion in 2023.
- The top 1% pays 40%, which is $0.89 trillion.
- There are approximately 1.5 million people in the top 1% of earners.
- Before tax, each person in the top 1% splits $3.46 million.
- After tax, each person in the top 1% splits $2.81 million.
If we're to take all these numbers generally, that means that the top 1% is paying approximately 19% income tax. I'm assuming this gets adjusted up to an effective tax rate of 26% through things like capital gains and consumption, so no, I'm not sure it's artificially low.
These are pretty basic back of the envelope estimates, so please correct me if I overlooked anything.
I believe the stat is misleading because the percentage 40% is supposed to be some sort of shock. 40% of all income tax, oh my GOD! In reality, it's more representative of how much more the top 1% earn. They pay 40% of all income tax because they earn so much more than the median earner.
Genuinely, is this just an overblown talking point meant to shock potential sympathizers?
Isn't the stat "The top 1% pay over 40% of the Federal Income Taxes" an overblown talking point?
byu/Pax_87 inAskEconomics
Posted by Pax_87
1 Comment
Whether this fact is overblown or not is a subjective question. But it is correct that we tax income very progressively, which is reflected by this statistic.
It’s also a fact that the top 1% as a group derive most of their income from capital gains, so sometimes their effective rate is lower than some people who make less but primarily receive regular income.
*My* subjective opinion is that it’s very good for people to understand these kinds of facts when discussing whether the tax system is designed well, and in my experience a lot more people think the 1% pay 0% of Federal income taxes than 40%, so it’s probably severely under-blown as a talking point.