Who Pays Taxes in the US?

While income taxes in the US are skewed to the rich, payroll taxes even out the tax code so that low and middle income workers contribute to government finances.

Conservatives often claim that the richest Americans pay taxes for everyone else, while liberals claim that the rich get away with special treatment at tax time. Which is true, and who really pays the government’s bills in the US?

Government Revenue By Source [1]
Source 2008 Revenue
Personal Income Tax $1,146 Billion
Payroll Tax $901 Billion
Borrowing $459 Billion
Corporate Income Tax $304 Billion
Duties, Excise, Estate, and Other Taxes $175 Billion
Total $2985 Billion

Personal income taxes are the largest single source of government revenue, but payroll taxes are close behind, followed by borrowing, corporate income taxes, and other taxes. How do tax receipts break down by income group? According to The Tax Foundation, 2007 IRS data show that the top 1% of taxpayers paid 40% of income taxes, while the top 10% of taxpayers paid 71% of income taxes. But when payroll taxes are included, the picture looks more balanced:

Government Revenue By Income Group [2]
Source 2008 Revenue
Income and Payroll Tax Paid by Top 10% $1056 Billion
Income and Payroll Tax Paid by Remaining 90% $991 Billion
Borrowing $459 Billion
Corporate Income Tax $304 Billion
Duties, Excise, Estate, and Other Taxes $175 Billion
Total $2985 Billion

The top 10% of individual taxpayers provide 35% of all government revenue, while the bottom 90% provide 33%. Borrowing and corporate taxes provide most of the remainder. When looking at this data, a few interesting facts stand out: While the rich pay far more on an individual basis than middle and lower income individuals, they hardly support the government single-handedly. The richest Americans (the top 1%) also pay an average tax rate significantly lower than the top marginal rate, so they do appear to benefit significantly from deductions and exclusions in the tax code.

[1] The 2010 US Budget Summary Tables provide a breakdown of government revenue by source. PDF page contains the revenue breakdown.

[2] The amount of income tax paid by the top 10% and bottom 90% is taken from the Tax Foundation’s summary of IRS data. For payroll taxes, the breakdown was estimated based on the fact that Social Security taxes are limited to the first $102,000 in income for 2008. Virtually all of the top 10% will be above this limit since the minimum AGI for those in the top 10% was $113,000 for 2007. One complication is estimating how many W-2 wage earners file on a single return. In 2007 there were 153 million individuals in the labor force, but only 141 million returns. We can use this ratio (roughly 1.1) to adjust our calculation. The calculations were also proportionally adjusted for the fact that the Tax Foundation and IRS data is for 2007, while the budget data used is from 2008. The 14 million households in the top 10% pay approximately $240 Billion annually in payroll taxes. The remaining 90% of the workforce pays $660 Billion in payroll taxes.

3 thoughts on “Who Pays Taxes in the US?

  1. The more important data in my opinion is who doesn’t pay taxes: The Federal Reserve.
    And those who barely pay any taxes: Large financial institutions who don’t have ownership interest in the Fed (see Goldman Sachs).

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