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by Harry Rabb, C.P.A.
Special to Tropical Breeze
Taxes are unpleasant and unfair. We all
know this. And our friends in government work hard to keep it that
way.
The only thing about taxes that all
Americans can agree on is that someone else should pay them.
Perhaps we can learn something by
examining how much we pay in taxes, who pays them and how our tax
payments have changed in the last 20 years or so. We can do this
pretty easily thanks to one of our tax-supported government
agencies, the Internal Revenue Service.
Every year it examines all the returns
that are filed and analyzes changes in the patterns of tax
payments. The latest year for which the data is complete is 2005.
The basic data are available in an imaginatively titled work,
"Individual Income Tax Rates and Shares, 2005."
Here are some of the key lessons of those
data:
Historically, little has changed. In 2005,
those of us who paid income taxes collectively paid 13.6% of our
income. Some paid more. Some paid less. But the average burden
wasn't exactly overwhelming.
In fact, for all the drama about George W.
Bush's tax cuts, the reality is that our tax burden is about the
same today as it was before Bill Clinton was elected president. In
the seven years before Clinton, our average tax rate was 13.86%. In
1992, we paid taxes at an average rate of 13.7%, about the same as
in 2005.
During the eight years Clinton was in
office, the average tax rate rose from 14.1% in 1993 to 16.1% in
2000. In the Bush years since then, the average tax rate has
declined from 15.2% to 13.6%.
Today, fewer people pay income taxes. In
1986, Americans filed 103 million federal income-tax returns. Of
those, 84 million filers had to pay taxes. That's about 81.5% of
all returns. By the time Clinton took office, the percentage of
filers paying taxes had declined to around 75%. During the Bush
years, the percentage of filers who paid taxes has continued to
decline. It fell to about 67.4% in 2005.
This is not a minor number. In 2005, 134
million American households filed tax returns. Only 90 million of
them paid any taxes. Though the number of households filing returns
rose by 5 million between 2000 and 2005, the number of households
actually paying income taxes fell by 6 million. Basically, 11
million lower-income households don't have to pay income taxes
that would have had to pay taxes before the Bush tax cuts.
Of course, the federal income tax isn't
the only tax that we pay. Anyone who works pays the employment tax,
a stiff 15.3% of salaries and wages. Politicians tend to forget
this.
Bush tax cuts notwithstanding, those with
high incomes continue to pay at much higher tax rates than those
with lower incomes. They also pay much more of the total tax bill,
a reality that seems to have escaped the Presidential
candidates.
Only 953,000 households -- about 1% of the
total who paid taxes -- paid at the top 35% tax rate in 2005. They
paid $315.4 billion in taxes on their $1.1 trillion in income.
The most common marginal tax rate is 15%.
That's the rate paid by 54.4 million households. This means the
typical taxpayer pays at less than half the tax rate of the top
earners.
The second most common marginal tax rate
is 10%. About 25.5 million households pay at that rate. This group
pays taxes at one-third the rate paid by the highest-income
taxpayers. So of the two-thirds of all households that pay anything
in income taxes, about three-quarters pay at 15% or less.
An additional 22 million, 3.7 million and
1.5 million households pay income taxes at marginal rates of 25%,
28% and 33%, respectively. In 2000, this top 25% of all taxpaying
filers paid a whopping 83.6% of all income taxes. By 2005 they paid
85.6% of all taxes. So despite tax cuts for the well-off, the share
of taxes paid by them has risen.
What does this all mean?
Simple. When political talk turns to tax
"fairness," none of the candidates mentions where a high income
begins. So we thought you might want to know. You were in the top
25% of taxpayers in 2005 if your taxable income exceeded
$61,055.
Millions of Americans have no idea what
fat cats they are.
• • •
This information is provided as a public
service and should not be construed as individual accounting or tax
planning advice. For information on how these general principles
apply to your situation, please consult an accounting or tax
professional.
Harry Rabb is a C.P.A. and partner in
Cormier & Rabb, CPAs, Accounting, Tax and Consulting Services,
28163 U.S. Hwy. 19 N., Ste. 204, Clearwater. Call 727-796-2459.
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