Each year, the IRS issues spreadsheets of data taken from Individual Income Tax returns. I think the data might surprise many readers. The data is based on Adjusted Gross Income. About 2% of returns report no AGI -- that is, higher losses than income; the average loss was just over $34,000 in 2006. The remainder of the data reported here omits those 2% of returns. The table below aggregates groups the spreadsheet breaks out (the spreadsheet reports these ranges: $1 to $5,000; $5-$10,000; $10-$15,000; $15-$20,000; $20-$25,000; $25-$30,000; $30-$40,000; $40-$50,000; $50-$75,000; $75-$100,000; $100-$200,000, $200-$500,000; $500-1,500,000; $1.5-2.0 million; $2 to $5 million; $5 to $10 million; $10 million and over).
cume cume cume %
% of cume % pct of cume returns % AGI after-tax married+2 avg inc
returns of returns AGI % of AGI from bottom income tax bracket taxes
under $10,000 . 17.26% 17.26% 1.47% 1.47% 100.00% 100.00% 100.00% 0% $ 34
$10-$20,000 ... 16.68% 33.94% 4.15% 5.62% 82.74% 99.62% 96.28% 0% $ 376
$20-$30,000 ... 13.76% 47.70% 5.70% 11.32% 66.06% 94.38% 90.62% 0% and 10% $1,239
$30-$40,000 ... 10.42% 58.12% 6.06% 17.38% 52.30% 88.68% 87.40% 15% $2,331
$40-$50,000 ... 7.88% 66.00% 5.90% 23.28% 41.88% 82.62% 80.88% 15% $3,567
$50-$75,000 ... 13.89% 79.89% 14.26% 37.54% 34.00% 76.72% 74.62% 15% $5,699
$75-$100,000 . 8.21% 88.10% 11.83% 49.37% 20.11% 62.46% 59.69% 15% and 25% $8,956
$100-$200,000. 8.90% 97.00% 19.78% 69.15% 11.90% 50.63% 47.45% 28% $17,869
$200-$500,000. 2.30% 99.30% 11.02% 80.17% 3.00% 30.85% 27.70% 28% and 33% $57,463
over $500,000. 0.70% 100.00% 19.83% 100.00% 0.70% 19.83% 17.53% 33% $399,125
This data all comes from IRS SOI Table 1.4 for 2006, and my own calculations.
Some observations:
- 47.70% of us had AGI under $30,000 in 2006. That 47.7% of us received 11.32% of the AGI and ended up with 9.38% of the after-tax income. (This ignores OASDI payments, which hit incomes under $100,000 disproportionately)
- 66.00% of us had AGI under $50,000 in 2006. That 66.0% of us received 23.28% of the AGI and ended up with 19.12% of the after-tax income
- 88.10% of us had AGI under $100,000. That 88.10% of us had 49.37% of the AGI and ended up with 59.69% of the after-tax income (before paying OASDI, which, for 75% of us amounts to more than our federal income tax).
- 11.90% of us had AGI over $100,000. That 11.90% of us had over half of the AGI, and 47.45% of the after-tax income; and their OASDI payments were a relatively small portion of their federal liability.
- 3.0% of us had AGI over $200,000. That 3.0% of us received 30.85% of AGI, and ended up with 27.70% of after-tax income.
- fewer than 12% of us were in the 25% marginal tax bracket, excluding OASDI
- fewer than 3% of us were in the 28% marginal tax bracket, excluding OASDI
- fewer than 1% of us were in the 33% marginal tax bracket, excluding OASDI
Keep in mind that OASDI is 7.65% of wage income, and that for about half of us, OASDI exceeds federal income tax.
Looking at this information, what income range would you define as "middle class"? What percentage of us make up that "middle class"? One might reasonably look at it this way:
- Bottom 1/3 of us -- AGI under $20,000: lower middle class, poor and working poor
- Middle 1/3 of us -- AGI of $20,000 to $50,000 -- middle class
- Top 1/3 of us -- AGI of $50,000 or more -- upper middle class
- Top 10% of us -- AGI of ~$120,000 or more -- upper class
While it does not show up in the above table, AMT (Alternate Minimum Tax) in 2006 affected 2.87% of returns -- 3,967,000 returns. Of them,
- 9.07% of returns in the $100-$200,000 AGI range were subject to the AMT - - 0.79% of the 2.87%
- 71.83% of returns in the $200-$500,000 AGI range were subject to the AMT - - 1.62% of the 2.87%
- 64.82% of returns in the $500-$1,000,000 AGI range were subject to the AMT -- 0.28% of the 2.87%
While we regularly hear about the AMT being a plague on the Middle Class, much depends on what one considers the middle. 97% of all returns show AGI lower than $100,000:
- 9.87% of the AMT paid was in the $100,000 to $200,000 AGI range;
- 50.93% of the AMT paid was in the $200,000 to $500,000 AGI range;
- 36.78% of the AMT paid was in the $500,000 to $1,000,00 AGI range
All of this is written to point out that our Federal Income Tax is rather poorly structured. I firmly believe that we place our taxes on the wrong tax base, and exacerbate our concentration of wealth. What SHOULD we tax? The basis of all production: the value of land and other natural resources. Don't tax what people create; tax what none of us created individually -- correct the windfall which its privatization creates. Set us all equal with respect to natural resources and land value.
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