Distribution of income tax payment

Being a tax wonk and a statistics junkie, I’m highly intrigued by data such as this:

New data released by the IRS today offers interesting insights into the distributional spread of the federal income tax burden, new analysis by the Tax Foundation shows. The new data shows that the top-earning 25% of taxpayers (AGI over $62,068) earned 67.5% of the nation’s income, but they paid more than four out of every five dollars collected by the federal income tax (86%). The top 1% of taxpayers (AGI over $364,657) earned approximately 21.2% of the nation’s income (as defined by AGI), yet paid 39.4% of all federal income taxes. That means the top 1% of tax returns paid about the same amount of federal individual income taxes as the bottom 95% of tax returns.

So, what does that mean? In short, it means that rich people are the one that support the vast majority of all federal programs. The top 1% of all income earners paid in 95% of all total taxes collected by the federal government.

The reason I like to point this out is because, as a tax preparer and tax consultant, I hear a lot of people complain about the tax breaks that rich people get. However, it really just isn’t so. A huge example is that the Earned Income Credit that lower income families receive, which is the credit that enables them to receive thousands of dollars in tax refunds every year beyond the tax liablility they had had, is actually PAID FOR BY RICH PEOPLE. Yes, the money has to come from somewhere in the IRS system, and it comes from other taxpayers.

The other thing I like to point out is that rich people are usually the folks that own the businesses that the rest of us work for. In other words, the wealthy, evil rich people and evil, wealthy corporations are the ones that provide the rest of us with a job. Working that job is a voluntary arrangement, so if we don’t like it, we’re welcome to leave.

That right there is the reality of our economic and tax situation. So, the next time you hear somebody complaining about how unfair the system is, keep these things in mind. Particularly with the earned income credit, the IRS is acting as a wealth distribution service to GIVE FREE MONEY to lower income families that was taken from higher income families that actually EARNED that money.

There’s the old saying, “Don’t steal, the government hates competition,” and I personally believe it’s true. The system will never be fair, but it’s actually quite balanced. Lower income earners get free money they never earned, and higher income earners, through their businesses, get significant tax write-offs that not everybody does.

Thus ends my rant for the day. :)

Be happy, be great!

Jassen Bowman, EA

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