How Much Tax Do Top 20 Percent Pay?
There are many tax strategies that come into play when looking at the American tax system, such as tax credits and breaks given to individuals. One assumption made by Americans is that high-income earners pay little or no taxes to the government. However, the opposite is true; the top income earners account for the largest percentage towards the total tax revenue accounted for by the government.
Today, we will take a look at whether the top 20% of income earners contribute to paying 95% of the total tax revenue collected by the government. The short answer is no. A greater percentage of taxpayers actually account for the 95% of tax revenue collected by the government.
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Before we get to the long answer, which involves the details of the various tax brackets and tax rates, let’s take a look at where this idea that 20% of income earners pay 95% of taxes originated from.
The comments that the top 20% of income earners account for 95% of tax revenue came from Mick Mulvaney. Mulvaney is part of the Republican Party and the director of the Office of Management and Budget (OMB). The focus of the OMB is to create the president’s budget and measure how different programs benefit the overall tax revenue.
Mulvaney sat down with the Institute of Politics and Public Service at the McCourt School of Public Policy where he claimed that the top 20% of income earners pay 95% of the taxes. (Source: “OMB: Top 20% pay 95% of taxes, middle class ‘single digits,’” Washington Examiner, October 27, 2017.)
In the interview, Mulvaney explained that individuals considered low- or middle-income earners pay little or no taxes because of two reasons: either they don’t earn enough income to pay taxes, or they receive credits, which lowers the amount of taxes they pay.
Mulvaney went into further detail about how high-income earners are actually are paying much more tax and help support lower-income earners. This occurs because, in many cases, high-income earners pay taxes and low-income individuals receive tax refunds. It could be looked at as a transfer of money from high-income earners to lower-income earners. This is why time and time again, the rich receive larger or many tax benefits.
Let’s now go through the numbers and see how much each income bracket contributes to the total tax revenue.
Who Pays the Most Taxes? How Much Tax Does Top One Percent Pay?
The Tax Foundation released a study in February 2017, which broke down tax rates, income levels, and the percentage of taxpayers in a particular tax bracket. The Tax Foundation is a tax policy research organization that has been operating for more than eight decades. (Source: “Summary of the Latest Federal Income Tax Data, 2016 Update,” Tax Foundation, February 2017.)
In 2014, there was a total of 139.6-million taxpayers that reported $9.71 trillion adjusted gross income (AGI). The total income taxes paid by all taxpayers was $1.37 trillion. The average tax rate applied to all taxpayers was 14.1%. The top one percent of income earners paid the highest average tax rate of 27.1% and the bottom 50% paid an average tax rate of 3.4%.
In terms of dollar amounts, the top one percent of income earners paid a combined $542.6 billion in total taxes, whereas the bottom 50% of income earners paid a total of $37.7 billion. The top one percent accounted for more tax revenue than the bottom 90% of taxpayers.
U.S. Tax Distribution by Income
Below is a table reflecting the tax burden by income level in 2014.
| Income Level | Top 1% | Top 5% | Top 10% | Top 25% | Top 50% | Bottom 50% |
| Percentage of Total Tax Revenue | 39.40% | 59.90% | 70.80% | 86.70% | 97.20% | 2.70% |
| Average Tax Rate | 27.10% | 23.60% | 21.20% | 17.80% | 15.50% | 3.40% |
The table above shows that the comments made by Mulvaney were incorrect. The top one percent of income earners accounted for approximately 39.4% of tax revenue earned by the government. The top 25% of individuals with the highest income contributed roughly 87% towards the total tax dollars collected. The top 50% of income earners amounted to approximately 97.2% of tax revenue, and the bottom 50% of income earners contributed 2.7% to the tax revenue figures. It is safe to say that the top 20% of income earners contribute less than 86% as a whole.
How Much Does the Middle Class Pay in Taxes?
An individual in the middle class would be defined as a single person earning between $24,042 and $72,126. A married couple or common-law partners would be middle class if they earned between $34,000 to $102,001. Half of Americans would be considered part of the middle class. (Source: “Here’s how much you have to earn to be considered middle class,” CNBC, March 13, 2017.)
The middle class has the largest population and accounts for less than 10% of the total tax revenue earned by the government. This would be an example of a group that receives tax credits and breaks, which result in little or no taxes being paid out of pocket or through their wages.
At times, the middle class will receive tax benefits because governments look at the group in the long term. For instance, the intent is that these individuals get out of the middle class and move up to the top income earners. Over time, by earning a higher income, there should be more tax revenue flowing into government accounts.
At the end of the day, even though the middle class accounts for the largest percentage of the population, the top income earners are the ones that help the government accumulate its tax revenue.
How Many Americans Do Not Pay Taxes?
According to the tax policy center in 2016, there were 76.9 million American that did not pay any tax from their income wages. This would amount to 44.3% of the entire population of the United States. This has been the trend over the past few years. For instance, in 2011, there were 75.1 million individuals that paid no taxes, which is equal to 46% of the total population at the time. (Source: “T16-0121 – Tax Units with Zero or Negative Income Tax Under Current Law, 2011-2026,” Tax Policy Center, July 11, 2016.)
Many Americans are following the rules of the tax system by not pay any income taxes. One reason for this is because they are not earning a very high income, which leads to paying no taxes to the government. When there are deductions made through the year from each paycheck earned, there is a tax refund received when the tax filings are completed.
Also, there are a number of Americans that receive tax credits and breaks, which results in paying no taxes to the government or receiving a tax refund. Some Americans are living in a no-income-tax state, which results in them not having to pay income taxes. A few examples of these no-income-tax states would include Florida, Texas, Alabama, Indiana, Tennessee, and Arizona.
The states listed above charge taxes on interest income, dividend, and capital gains. However, if there are no investments or income earned, there are no taxes paid by the individual.
In the end, how much tax an individual pays depends on where he/she resides and not just by how much he/she earns. When individuals look at taxes, they factor in their home residence as well, since it is a large cost to wages earned.
Tax Burden by Income Level
As we reach the end of the article, you should be more informed about how different income levels influence the country’s tax revenue.
Even though Americans are grouped as one, the tax rules do not apply to everyone at the same level. For example, an individual could be living in a state that doesn’t apply any income towards its residence. Or it could be the case that individuals do not pay any taxes because they receive tax credits and breaks.
Mulvaney’s comments that the top 20% of income earners pay 95% of all taxes may be true if the states that do not pay income taxes are factored out. However, his comments are true that the super-rich contribute the greatest percentage towards the total tax revenue earned by the government.
Also, Mulvaney’s comments help everyone understand why the super-rich are given tax breaks and credits, periodically. Even though there are tax benefits given to the top income earners in the country, the result is that they still remain the top taxpayers in the country.
At times, there is tax relief given to high-income individuals because they have more disposable income and are able to spend much more freely. The belief by economists and other government officials is when the top income earners are spending money, it will trickle down in the economy. This leads to jobs growth, more money exchanging hands, and more tax revenue for the government.
