Income Taxes: The Truth!

The election seems like it’s the only topic people can focus on. As such, I want to share some stats which are not intended to have a political view. Both sides of the fence seem to want to present partial facts which support their agenda, so here are some facts. You decide!

In 2021, the distribution of federal income taxes in the U.S. highlighted significant disparities among income groups. The top 1% of income earners, those with adjusted gross incomes (AGIs) of $682,577 and above, were responsible for paying 45.8% of all federal income taxes. This share has risen over the years, demonstrating the progressive nature of the U.S. tax system. Collectively, the top 5% of earners (those earning $252,840 and above) paid 65.6% of total income taxes, while the top 10% (earning at least $169,800) paid 75.8%.

One party would have you think the rich are getting richer, and they are not paying enough in taxes. I would say Thank You to those in the top 1% for supporting the other 54% of the taxpayers! The other side would have you think it’s not fair to place such a burden on the highest percentage of earners because lower income taxes SHOULD lead to the ability to pay higher wages for those business owners who earn over $682k.

In contrast, the bottom 50% of taxpayers, who had incomes under $46,637, contributed only 2.3% of total federal income taxes. This stark contrast reflects both the income distribution in the U.S. and the design of tax policies that levy higher rates on higher incomes.

These statistics show how the bulk of federal income tax revenue is funded by higher earners, which supports the claim that top earners contribute a disproportionate share of taxes compared to middle- and lower-income groups. This could be an engaging topic for a blog post discussing tax equity, the impact of progressive taxation, and fiscal policy considerations in the U.S.. Here are a few more points to add context.

Inflation Trends: In recent years, the U.S. has experienced notable inflation, especially post-pandemic. The inflation rate peaked at around 9.1% in June 2022, the highest in over 40 years, driven by supply chain disruptions, increased demand, and energy price spikes. While it has moderated since, inflation continues to impact consumer purchasing power.

Cost of Living Increases: The cost of essential goods such as food, housing, and energy has risen sharply. For example, in 2022, grocery prices increased by over 13%, and rent saw a significant rise, with year-over-year growth exceeding 15% in many major cities. This puts added pressure on households, particularly those in the lower to middle-income brackets.

Wage Growth vs. Inflation: While wages did increase in recent years (averaging 5% year-over-year in 2022), they often lagged behind inflation rates, leading to a reduction in real earnings. This disproportionate growth means that although nominal incomes rose, actual purchasing power for many Americans diminished.

Impact on Taxation Perception: With the backdrop of rising costs and real wage stagnation, higher-income groups’ substantial contribution to federal income tax revenue may be viewed in contrast to the financial strains experienced by middle and lower-income groups. This context highlights discussions on tax policy, income inequality, and economic resilience.