The U.S. Tax Burden May Rest Completely on Your Shoulders

Ever feel as if the entire personal income tax burden of the United States was resting on your shoulders?

It might be because it is.

Taxpayers who had adjusted gross incomes of $17,598 or more paid 94.1% of all the personal income taxes collected by the federal government in 1987, according to a recent study by the Tax Foundation, a nonprofit research organization based here.

But before you get too excited, this isn’t exactly news--nor should it be. Because of our progressive tax structure, those with most of the money pay most of the tax. And they have been doing so for many years.

Indeed, while the upper half of the nation’s taxpayers paid more than nine-tenths of the personal income tax, they also had 85.5% of the income.

Nonetheless, the new study, which examines tax collections in 1979 and 1987, provides an interesting look at how income and taxes are distributed.

For example, in 1987 people in the top 5% of incomes--those with adjusted gross incomes of $71,125 or more--had 25.5% of all such income. There were about 5.4 million such taxpayers.

These high rollers paid 43% of all federal personal income taxes in 1987, up from 37.6% in 1979.

But while the upper-bracket share of taxes increased, the average tax rate on them decreased from 26.1% in 1979 to 22.4% in 1987.

This suggests that their higher tax payments came about because their incomes rose faster than those of the less well off during the Reagan years.

However, Paul Merski, director of special studies at the Tax Foundation, cautioned that “you have several things in motion.” Changes in the tax law enacted in 1986 not only caused shifts in brackets, but also changed all sorts of exclusions and deductions and pushed more of the tax burden onto corporations and off of individuals.

“When you throw all these things together, it’s hard to tell what’s causing what,” he said.

He noted that the Tax Reform Act of 1986 was meant to be revenue neutral and at least between 1986 and 1987 came close to achieving that goal.

And in terms of overall well-being, there are other factors to be considered, such as whether the higher business taxes are being passed on to consumers and employees in the form of higher prices and lower pay.

At the other end of the scale, the lowest quarter of taxpayers reported only 2.5% of all adjusted gross income, and the bottom half--53.5 million taxpayers and their families--got only 14.5%.

In other words, the top half pulled in $2.4 trillion while the bottom half got $404 billion.

Thus, while the tax burden is distributed in a manner roughly proportional to income, taxable income is heavily concentrated in the upper half of society.

And since the Tax Foundation study covered only taxpayers, those too poor to file tax returns are not included, indicating that the real distribution may be even more lopsided.

On the other hand, the impact of the underground economy--which is estimated to cost the government $100 billion annually--is also missing from these numbers, and while such off-the-record income is by no means confined to lower-income groups, presumably much of it goes there.

The income necessary to reach the top 10% increased 67% between 1979 and ‘87, while the ceiling for the bottom 10% rose 30%.

Meanwhile the average tax on the top 5% climbed 71%, from $17,407 to $29,820, while the average tax for the bottom 10% climbed 177%, from $9 to $25.

However, the average tax on the top 50% rose 51%, from $4,315 to $6,526, while that on the bottom half climbed 31%, from $313 to $410.

So while you may feel your taxes are too high, remember that it’s better to make money and pay taxes than not to do either.