Income tax 5% is not then added to the property tax 15.20% and the sales tax 6.25% to come up with 26.45%…there is no math that makes that honestly 26.45%.
You can not chop up apples and oranges and mix them together to get three pears.
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Lies, damn lies, and statistics.
The top 1% of income is sooo skewed that of course they pay a massive amount of the income tax.
Additionally, comparing it to their portion of AGI is also misleading as many top earners (those pulling incomes well into 7 and 8 figures) have ways to drastically reduce their AGI through various deductions and credits.
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True. At the same time, don’t they also pay the highest percentage-wise? That’s the whole idea of a progressive tax scheme.
DB2
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The wealth distribution here has become absurd. And it makes conversations about taxation and burden hard to understand and talk about unless you really have an idea as to just how skewed it has become.
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Few “JCs” are foolish enough to take most of their loot in W2 wages and bank interest. Cap gains and divis are taxed at far lower rates. For the halibut, I did not take a distribution from my IRA, which is taxed as W2 wages, one year. iirc, my annual income that year was some $40K, but, being all divis, and long term cap gains, my tax liability was $0. Couldn’t believe it. Worked it all out by hand three times, in case there was a math error. Anyone care to guess how much I paid in income tax, when I made anywhere near that amount of loot in W2 wages? It was not $0. And, unlike W2 wages, there was no FICA deducted from the divi and cap gain loot either.
As Buffett pointed out years ago: he pays a lower proportion of his income in taxes than his secretary, because of the way the Shiny tax system is skewed to favor the rich.
Steve
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The argument of the OP isn’t that it is progressive (it clearly is), it is that they are soaked (they’re objectively not).
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But even with the byzantine tax code, both the absolute numbers and the percentages paid by the top 1% are larger. One could argue they should/could be higher, but that’s a different discussion.
DB2
One quick example: If you are over 50, you can put about $70,000/year in qualified retirement accounts–which lowers your AGI. I humbly submit if you can afford to save $70,000/year you don’t need a tax break.
Similarly, but on a lower scale, you can save about $7K/year in an HSA, which is exempt from FICA as well. As a topper, the investments inside the HSA grow tax free. So there’s a double tax break. So similarly, I’d argue if you can save $7K/year, you don’t need a double tax break.
And yes, I take advantage of both of these.
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Lets put this in contrast. the number of tax returns for the top 1% have grown by 50% in the last 40 years (from about 1000 to about 1500).
The total AGI of the top 1% has grown by 20 fold (2000%) over that same 40 years.
So ya, it should be (even more) higher.
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The maximum long term cap gain tax rate, with very few exceptions is 20%
The maximum tax rate on qualified dividends is 20%
A single person with taxable earned income over $41,775, is paying a higher marginal rate on his earned income, than a person with $80M of cap gain and divi income.
And that is only counting the income tax.
Add in FICA tax, 7.65%, and people with taxable income of $10,275, are paying a marginal rate of 19.65%, very close to the rate paid by the person with 8 figures/year of divi and cap gain income.
Steve
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I suppose that depends on how you define 1%. If you define it as the 1% of filers who have the highest earnings, the the increase is only ever going to be based on the increase in the number of filers.
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Yes - but I think you and DrBob are talking about two different things.
A person with ~42K in income still faces a marginal rate of 22%. But their effective tax rate - the percentage of their income paid in federal income tax - will only be about ~12%, because of the standard deduction.
Thus, they have a higher marginal rate, but the percentage of their income paid in federal income taxes is significantly lower than that of a higher earner that gets all of their income from dividends and long-term capital gains.
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The bracket below 22% is indeed 12%, then add FICA. The two rates become 29.65% and 19.65%, vs the person with 8 figure investment income, that pays no more than 20%.
Steve
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But then you’re in a different question.
FICA income taxes are capped. But then again, so are FICA benefits (practically speaking). As is sometimes noted, the federal government is mostly an insurance company with an army. They offer unemployment insurance, retirement pensions, and health care insurance for the elderly - and then some amount of other programs in addition to national defense.
In principle, the caps exist because FICA payments aren’t intended to pay for the national government. They are insurance premiums - intended to cover the average cost of providing the insurance coverage. The caps are there to allow those programs to function, generally, as analogs to pensions and health insurance and unemployment insurance, and not a generic funding source for the government.
Differences of opinion on the “fair share” question sometimes are, at heart, a difference of opinion on whether these programs ought to function as insurance programs or general wealth-distribution programs - whether people’s payments to Social Security and Medicare should be roughly proportionate to the benefits they might expect to receive from such programs, or not.
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The definition of the top %1 of AGI seems to be quite clear to me. I don’t see the ambiguity.
I also don’t see why it matters. I already indicated that the number of people increased by 50%, as one would expect with a growing population. But, the amount of AGI that 1% also grew by 2000% - massively outpacing their increase in population.
A different definition of income would not lesson that disparity.
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They added a medicare tax to these a few years ago for the affluent. That adds 3.8%, so it’s now 23.8% long-term capital gains tax in total.
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@steve203 Don’t turn accountants loose with a challenge like this. We take you up on it. 
I’ve run the numbers, and you’re right on the money. The key thing is that you said taxable earned income. That implies having already subtracted off the standard deduction of 12,950. And yes, that person would face a 22% marginal income tax rate vs. the 80 mil of cap gains/dividend marginal rate of 20%.
For those that want to include Social Security and Medicare taxes, and might want to consider average rates rather than marginal, here’s a few more numbers to chew on.
Let’s look at a wage earner at $100k of income on their W2. (So before the standard deduction.) They’ve got 6200 in Soc Sec tax, 1450 in Medicare tax, and 14,774 of income tax, for a total tax of 22,424 and an average rate of 22.4% Their marginal rate is 6.2% for SS, 1.45% for Medicare and 22% for income, totaling 29.65%
Compare that to someone with 80 mil of qualified dividends. They have medicare tax of 3.03 million, income tax of 15.97 million, so a total of 19.0 million. That’s an average and marginal rate of 23.8%. (The low bracket amounts have literally become a rounding error of 0.05% of total income.)
Where you really see the stark differences happens in the 200k to 1 million range of income.
Someone with 200k on a W2 will pay about 52k in combined taxes (SS, Medicare, Income), while that same income from qualified dividends pays just under 22k. At 500k, the wage earner pays an average of 32.7%, while the divi collector pays 15.9%. Bump that up to 1 million, and the wage earner is paying 35.9% and the investor pays 20.1%.
All of these higher income figures include the medicare tax on investment income as well as the additional medicare tax on higher wages. They are also based on 2022 income, as that is what my tax software is currently calculating. And I’m far too lazy to do this by hand for 2023 figures.
–Peter
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Just a little side note on this.
FICA - at least in professional usage in my profession - includes both Social Security and Medicare taxes. Social Security taxes on wages are capped. Medicare taxes are not. And at higher wage figures (over 200k for single, 250k for married) there is an additional Medicare tax of 0.9%. Medicare tax also applies to investment income in excess of a similar threshold at 3.8%. So investors face that tax as well as income tax.
–Peter
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