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Top 1%: What They Make and Pay

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Q: What percent of taxes does the top 1 percent pay and what percent of the income do they make?

A: The top 1 percent of all households got 18 percent of all personal income and paid nearly 28 percent of all federal taxes in 2005, according to the Congressional Budget Office. The top 1 percent now pay a significantly larger share of taxes than before President Bush’s tax cuts, and also have a larger share of income.

FULL ANSWER:

The nonpartisan CBO keeps track of such things and published its most recent tables in December 2007. The information to answer this question is in "Summary Table 2: Shares of Federal Tax Liabilities, 2004 and 2005."

The top 1 percent in 2005 were those households with income of at least $307,500, and they got 18.1 percent of all "comprehensive" income, which includes all cash income plus the cash value of such benefits as Medicare and food stamps.

As for taxes, CBO calculates that the top 1 percent paid 27.6 percent of all federal taxes, including:

  • 38.8 percent of federal individual income taxes
  • 4.0 percent of federal social insurance taxes (Social Security and Medicare)
  • 58.6 percent of corporate income taxes (indirectly, through stock ownership)
  • 5.5 percent of federal excise taxes (on such things as gasoline, tobacco, alcoholic beverages and telephones.)

The share of taxes paid by different income levels have changed over time.

The share now borne by the top 1 percent is the highest it has been since 1979, the earliest year for which CBO has figures. And surprisingly, it is larger than in 2000, the last year of President Bill Clinton’s administration, before President Bush signed a series of tax cuts that benefited upper-income taxpayers by cutting the top rate on federal income taxes, cutting the rate on capital gains taxes and reducing the estate tax. One reason is that the top 1 percent now receive a greater share of income than at any time covered by CBO’s statistics, though those households receive only slightly more than the 17.8 percent share they got in 2000.

The change in income distribution is only one reason the top 1 percent pay more now than before their income tax rates were cut. The major reason is what the CBO and other tax experts call "real bracket creep." Even though income tax brackets are adjusted upward each year for inflation, there is still a tendency for incomes to grow faster than inflation, causing more income to be taxed in higher brackets.
 
-Brooks Jackson
 

Sources

U.S. Congressional Budget Office. "Historical Effective Federal Tax Rates: 1979 to 2005" Summary Table 2, December 2007.

U.S. Congressional Budget Office. "Historical Effective Federal Tax Rates: 1979 to 2005" Appendix: Detailed Tables for 1979 to 2005 Tables 1A and 1B, December 2007.