90% Tax Rate over Two Generations

Gregory Mankiw is an economist and a professor at Harvard University.  As a conservative (unusual to find at Harvard), he has good insight into income tax rates and how they motivate, or de-motivate, economic taxpayer activity.

Yesterday he wrote an editorial in the NY Times http://tinyurl.com/26j3o3g that sets out how tax rates affect him as one of the taxpayers who make over the magical $250,000 line drawn by the Obama administration to define "rich".  The interesting conclusion that Mankiw arrives at is that he can afford to pay more taxes, but that the very high share which goes to taxes (including estate tax) serves to demotivate him in terms of the effort required to earn more money.  He also makes the point that all consumers will be affected by higher tax rates in terms of the limitations of goods and services supplied by the higher income taxpayers (example recording artists, medical practitioners) that are similarly demotivated.

Knowing that the income tax debate will certainly heat up after the elections with the scheduled December 1, 2010 release of the National Commission on Fiscal Responsibility, readers of this blog may well want to take a look at the Mankiw editorial.

Who pays what share Income Tax in the U.S.?

There is significant debate over U.S. income taxes and who should pay and at what rate.  Any sensible debate should start with facts, and we have found that the Tax Foundation has good facts at  http://www.taxfoundation.org/news/show/250.html. 

The IRS has released new date on calendar year 2008 individual income taxes, with some key points being:

1. The top .1 of 1% of tax returns (adjusted gross income or AGI over $1,803,585) earned 10% of the nation's adjusted gross income and paid 18.5% of all federal individual inocme taxes with an average income tax rate of 22.7%.
2. The top 1 percent of tax returns (AGI over $380.354) earned 20% of the nation's AGI and paid 38% of all federal individual income taxes and had an average tax rate of 23.3%.
3. The top 5% earning taxpayers (AGI over $159,619) earned 34.7% of the nation's AGI and paid 58.7% of all federal individual income taxes at an average tax rate of 20.7%.  This means the bottom 95% of taxpayers paid 41.3% of all federal individual income taxes.
4. The bottom 50% of tax returns (AGI under $33,048) paid a total of 2.7% of all federal individual income taxes at an average tax rate of 2.6%.

We present this data with no editorial comment.  The goal is merely to inform the reader as to who is paying what share of federal individual income taxes in our country.