Income inequality…tax inequality

Income inequality has become a big political topic recently. Unfortunately, the debate is filled with more emotions than facts.

What shouldn’t be surprising is that those who make more also pay more in taxes–a lot more (especially with our progressive tax system).

Anyone who wants to understand the income inequality debate should probably become acquainted with some of the facts about how much tax inequality comes with income inequality.

A recent article in the Wall Street Journal (subscription required), with data from the Tax Policy Center, highlights this issue.

The bottom 20% in the U.S. makes $0 to $24,200 a year, earns 4.5% of total U.S. income, and gets paid 2.2% from income tax.  

The next 20% makes $24,200 to $47,300, earning 9.3% of U.S. income, and gets paid 1% from income tax.

The middle 20% makes $47,300 to $79,500 a year, earns 14.8% of total U.S. income and pays 5.9% of total income tax.

The next 20% makes $79,500 to $134,300, earning 20% of total U.S. income and paying 13.4% of total income tax.

The top 20% makes more than $134,300 a year, earns 51.3% of total U.S. income and pays 83.9% of the total income tax.

Breaking down the top 20%, the first 10% (those making the top 80% to 90% of income) makes $134,300 to $180,500, earns 13.1% of U.S. income and pays 10.8% of the income tax.

The next 5% (top 90% to 95%) makes $180,500 to $261,500 a year, earning 9% of all income, and pays 9.1% of the income tax.

The next 4% (top 95% to 99%) makes $261,500 to $615,000, earns 12.1% of all U.S. income, and pays 18.3% of income tax.

The top 1% makes over $615,000, earning 17.1% of all income and paying 45.7% of all income tax.

Yes, income in the U.S. is unequal, and that is because native ability, work ethic, and knowledge are unequal. 

It should be acknowledged, too, that those who make so much also pay MUCH more than those who earn less.

Nothing in this blog should be considered investment, financial, tax, or legal advice. The opinions, estimates and projections contained herein are subject to change without notice. Information throughout this blog has been obtained from sources believed to be accurate and reliable, but such accuracy cannot be guaranteed.

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Income inequality…tax inequality