Top 0.1 Percent Pays More Income Tax than Bottom 80 Percent

Weekly Standard

In his recently released deficit plan, President Obama lays out the “Buffett Rule” (named, of course, for Warren Buffett, the famous investor and supporter of Obama). The rule, as Obama defines it, is “that people making more than $1 million a year should not pay a smaller share of their income in taxes than middle-class families pay.”

Obama’s clear inference, of course, is that this otherwise happens routinely; that the rich are shirking their citizenly duties while the middle class pays. Is this inference true? Or is it simply a political fiction, a straw man from which Obama hopes to make hay in 2012?

The Tax Policy Center (TPC), a center-left joint-creation of the Brookings Institution and Urban Institute, publishes federal tax statistics by income group (see, here, here, here, and here). The essential funding source (at least from individuals) for most of the general functions of government — defense, roads, national parks, federal law enforcement, etc. — is the income tax. It is almost entirely through the income tax that individual citizens contribute financially to the day-to-day functions of their government.

In 2010, according to the TPC, Americans in the lowest quintile of income-earners — the bottom 20 percent — paid minus-3.8 percent of the total federal income tax burden. In other words, they got more back, in income tax credits and the like, than they paid in. Similarly, those in the second quintile paid minus-4.3 percent of the total federal income tax burden — so they, too, weren’t paying into the income tax till but rather were taking out.

Those in the middle quintile — pretty much the center of the middle class (this quintile had an average income of $44,000) — paid 3.9 percent of the total federal income tax burden (about $1 of every $25 dollars in income taxes paid nationwide). And those in the fourth quintile — whose income ranged from $58,000 to $102,000 — paid 15.1 percent of the total federal income tax burden.

So, all told, the 80 percent of Americans whose income placed them in one of these first four quintiles of income-earners combined to pay 10.9 percent of the total federal income tax burden. Put otherwise, this 80 percent of the citizenry paid about $1 out of every $9 that was paid in federal income taxes nationwide.

Meanwhile, Americans in the highest 0.1 percent of all income-earners — these are the very rich, with incomes of at least $1.974 million — paid 16.4 percent of the total federal tax burden. Essentially, one out of every $6 paid in federal income tax was paid by this 0.1 percent of the citizenry.

In other words, the top 0.1 percent paid more toward the workings of government than the bottom 80 percent did. That’s despite the fact that the bottom 80 percent collectively made more than six times as much money as the top 0.1 percent did.

On average, a given member of the top 0.1 percent paid $1.1 million in annual federal income tax — $1,147,616, to be more exact. That’s more than 1,000 times what the average person in the middle quintile paid ($1,017). Yes, the very rich made a lot more money — but not anywhere near 1,000 times as much. In fact, only 12 percent of this gap in income-tax payments is attributable to the gap in income between the two groups. The rest resulted from the very rich paying a much higher percentage of their income — more than 8 times as high — in income tax.

Now, I don’t know how much Warren Buffett pays his secretary, or how much either of them really pays in income taxes. But when 0.1 percent of the population is collectively paying more in income taxes than 80 percent of the population is collectively paying, it’s clear that there’s not a whole lot of need for the “Buffett Rule.”