Who says the rich don’t pay tax? According to IRS, they pay double their share.

The top 1% of taxpayers pay 38% of all individual income tax and that’s double their share of all income earned in the USA.

The top economic 25% of Americans pay 97% of all individual income tax collected.

The latest annual release of IRS Collections Data is available and it shows that, far from what you hear from the legacy media, not only do the rich pay tax, but they pay double their share, based on their share of all individual income earned in the United States. The most recent data covers tax years 2001 through 2013 and a summary of the 2013 data can be found on our annual IRS Data Update page. On that page, you can also find links to the IRS website, where you can download the complete IRS spreadsheets, from which this data was derived. (Yes. That’s 2013 data. The IRS gives us till April 15 to close our books and pay our taxes, but it takes them almost two years to close their books. Go figure.)

Before anyone makes an incorrect assumption about tax breaks for the rich affecting these numbers, it’s important to note that the numbers in this IRS data represent actual “collections”. It’s money deposited in the U.S. Treasury. These numbers are totals, after all adjustments, deductions, exemptions, credits, and even after the effects of cheating. It’s what was ultimately paid by each income group.

There is one more thing that we need to consider, before looking at this data. Think back to when Mitt Romney claimed that 47% of Americans don’t pay tax, but he couldn’t cite a source for that number. Well, it turns out that Romney was wrong… but not in the way the media tried to paint the issue. It turns out that his number was low. Data from the non-partisan Joint Committee on Taxation (JCT) reveals that, in fact, 51% of Americans don’t pay tax. Their actual words were, “… approximately 22 percent of all tax units, including fliers and non fliers, will have zero income tax liability, approximately 30 percent will receive a refundable credit, and approximately 49 percent will have a positive income tax liability.” For the record, “tax units” are roughly equivalent to “households”. To download the original Joint Committee on Taxation PDF document, from the U.S. Senate website, click here. Then look near the bottom of the first page, to see just how many Americans don’t pay tax.

This means that the top 50% of taxpayers is really only the top economic 24.5% of Americans. For our purposes, we’ll round this number to 25%. It also means that the top 1% of taxpayers is really only the top economic 0.49% of Americans. We’ll round this to 1/2%. So, in the table below, considering that roughly half of Americans don’t pay any income tax, the percentile of taxpayers (taken from the IRS Collections Data) is dimmed, while the calculated percentile of all Americans is bolded, in order to emphasize that the percentile of all Americans is the more important number.

Here are just a few of the things that the new data shows us.

Taxpayers Americans
Top 50% Top 25% 97.21% Percent of all individual income tax actually collected
Top 1% Top 1/2% 37.8% Percent of all individual income tax actually collected
19.04% Percent of all individual income earned in the USA
27.08% Average tax rate
Bottom 50% Second
2.79% Percent of all individual income tax actually collected
11.49% Percent of all individual income earned in the USA
3.3% Average tax rate

From the above, we can make the following calculations.

  • The top 1% of taxpayers paid double their share of tax based on income earned
    (37.8 ÷ 19.04 = 2 times their share of income).
  • The bottom 50% of taxpayers paid one-quarter of their share of tax, based on income earned
    (2.79 ÷ 11.49 = 0.243 times their share of income).

Keep in mind that all of these numbers are averages, for the whole of each income group. In every income group, there are those who take advantage of every tax break and some who even claim tax breaks to which they aren’t entitled, thus paying less than the average for that group. But at the same time, there are others, who pay more tax than necessary, because our overly complex tax code caused them to miss taking deductions to which they were legally entitled, thus causing them to pay more than the average for that group. But in both cases, those people are exceptions. The above numbers, from the IRS Collections Data, are averages for the whole of each group and they represent actual collections, after all tax breaks (legal or illegal) have been taken.

What this all boils down to is that, whether based on tax rates (28% versus 3%) or tax share versus income share (double share versus one-quarter share), the rich really do pay far more tax than any other income group.

But this attack on wealth in the USA is having an unintended consequence. Wealthy Americans are leaving the USA and renouncing their cherished U.S. citizenship in record numbers. When talking about record numbers, we’re not talking about marginal increases. We’re talking about an expatriation rate that is 1800% higher than the expatriation rate that Obama inherited from George W. Bush. So what this all boils down to is that you have to ask yourself one question.

When the wealthy leave, who will pay all those taxes that the wealthy used to pay?

It’s time for a sane tax system that is not open to playing favorites. It’s time for the FairTax.

More wealthy Americans set to renounce citizenship in 2015 than in all 8 Bush years

Formal Renunciations of the Wealthy in 2015 expected to exceed total for all 8 Bush years (projected 4295)Formal Renunciations of the Wealthy on Track for Yet Another Record High – projected 4295.
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Formal Renunciations of the Wealthy in 2015 expected to exceed total for all 8 Bush years (projected 4295).

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Based on the latest federal data on expatriations of the wealthy and using a straight line projection, more wealthy U.S. citizens will formally renounce their U.S. citizenship in 2015 than renounced in all eight years under President George W. Bush.

The 2015-Q3 Quarterly Publication of Individuals, Who Have Chosen To Expatriate has been released and it reveals that 1426 wealthy Americans formally renounced their U.S. citizenship in the third quarter of 2015, bringing the total number of expatriations for the first three quarters of 2015 year to 3221. That’s an average of 1,073.67 renunciations per quarter. So projecting that average number forward for one more quarter reveals that renunciations for the entire year will likely be in the neighborhood of 4,295 (3,221 + 1,073.67 = 4,295). For comparison, the total number of formal renunciations of U.S. citizenship among the wealthy, for all eight years under President Georg W. Bush was just 3,939. If expatriations reach the projected level this year, then it will amount to an increase in formal renunciations of 1,859%, over the renunciation rate that Obama inherited.

This is important, because the people whose names appear on these lists are not ordinary taxpayers. They are primarily very wealthy and as such, they represent a disproportionately large amount of federal personal income tax revenue. When they cease providing income tax revenue, those of us who remain must make up for that loss, in the form of higher taxes.

The above referenced lists were mandated under the Health Insurance Portability and Accountability Act of 1996 (HIPAA – H.R.3103) and they appear quarterly in the Federal Register. (Click here for quick links to all of the past lists.) From these lists, we know not just how many wealthy Americans renounced their citizenship every year, but we actually know the names of those people. Every number on the above chart represents that many wealthy U.S. citizens, who walked into a U.S. embassy or consulate somewhere in the world, turned in their passports, paid the Bush Exit Tax (part of the Heroes Earnings Assistance and Relief Tax Act of 2008 (H.E.A.R.T.)), and in doing so, left behind all further U.S. income tax liability on non-U.S. sourced income. Furthermore, most indicators show that, after renunciation, almost all of these people derive all or most of their income from offshore sources, meaning that they pay little or no U.S. income tax, after renunciation.

So just what is the requirement for a person to have his name appear on one of these lists? Well, the legal term is Covered Expatriate and the definition of that term appears in the above-referenced H.E.A.R.T. legislation. The IRS publishes the specific numeric criteria, for years through 2014, on their page on the Expatriation tax. A separate document gives the specific numbers for 2015 to qualify as a Covered Expatriate and to have your name appear on one of these lists. In short, you must fit at least one of the following three criteria.

  1. The renouncer must have a net worth of more than $2 million at the time of renunciation, or
  2. The renouncer must have had an income tax liability of more than $160,000 in each of the five tax years, prior to renunciation, or
  3. The renouncer failed to file a form 8854, in which he is supposed to swear that he does or does not fit one of the above two criteria.

The first criteria is very straight forward. The second criteria is only slightly obscure, since it is based on tax liability, instead of income. But if you look at the average tax rate paid by high income earners (around 22 to 23 percent) and work backwards, you will find that a $160,000 tax liability would mean that the individual probably earned in excess of $700,000 in each of those five tax years. Such an income would put the taxpayer/renunciant in the top one-half percent of all taxpayers.

However, that third criteria could leave one with a wrong impression. Some people might think that many less-than-wealthy expats might fail to file form 8854 and thus have their names appear on the Taxpatriot Lists, along with the rich expats. But there is more to being considered a Covered Expatriate, than just having your name appear on a list. The Bush Exit Tax, mentioned above, applies to Covered Expatriates only. Therefore, anyone who does not otherwise qualify as a Covered Expatriate, has a financial incentive to file a form 8854, because that’s where he declares that he does not fit one of the first two criteria. By failing to file form 8854, a less-than-wealthy expatriate would become subject to an exit tax that he would not otherwise be required to pay.

This isn’t to say that “every” name on the lists represent a wealthy person. After all, we are talking about the government and the “good enough for government work” attitude of government employees might allow the names of a few less than wealthy people to appear on the lists. But even so, those mistakes would make up a statistically insignificant portion of those lists. The whole point is that to be on one of those lists, one is extremely likely to be very wealthy.

As you can see from the above chart, formal renunciations of wealthy Americans remained rather steady throughout the last half of the Clinton Administration and renunciations actually trended downward in the final three years of the Bush Administration. But that all ended with the election of Barack Obama, who made it clear that he intended to “soak the rich.” In fact, the only drop in expatriations, since Obama took office, was in 2012, which was an election year. That means that a lot of people were waiting to see who won the election, before making a decision about renouncing. Moreover, even that temporary drop was substantially above the record high, recorded under George W. Bush.

According to the latest IRS collections data, the top 1% of taxpayers pay 38.1% of all personal income taxes actually collected and the top 0.1% (one-tenth percent) of taxpayers pay 18.6% of all personal income taxes actually collected. Therefore, since we know that most of the names on the lists are in the top half percent of taxpayers, we can extrapolate that those whose names are on the lists, are in the income group that pays around 30% of all U.S. personal income taxes. So, if just the top half percent of taxpayers were to renounce, those of us who remain would have to make up the difference to the tune of a 43% tax increase (30% / 70% = 42.9% increase) But those are just the taxpayers whose renunciations have been reported. While the top half percent of taxpayers are leaving, do you think that the rest of the top 1% or the top 5% are just sitting on their hands, waiting for a 43% tax increase. If the top 1% were to leave, it would mean a 61% tax increase.

For the record, according to the IRS, the top half percent of taxpayers amounts to just 680,402 taxpayers. A polynomial projection (6th order, for the statistics geeks among you) of the above chart shows that if we elect another “Soak the Rich” president, we could be losing between 35,000 and 60,000 of these top half percent taxpayers by the end of the next president’s term, in 2020. But long before it gets that bad, this trend will likely trigger an avalanche of expatriations that will make the current trend look mild, by comparison.

Sure, not all of any particular income group will renounce. So let’s consider what would happen if just half of the top 1% of taxpayers were to renounce. It would mean a 24% tax increase for those who are left and that’s not considering that many wealthy taxpayers, who are just not rich enough to be in the top 1%, are also leaving.

The point is that “Soak the Rich” isn’t working. As a result of this misguided attack on success, the successful are leaving and with their renunciations, giving up all future U.S. income tax liability for income not earned in the USA. Furthermore, after renunciation, most of those expats earn most or all of their income abroad. So as a result of “Soak the Rich”, we are driving out our most prolific taxpayers and job-creators. What’s wrong with this picture?

It’s time to end the system that enables such attacks on success. It’s time to abolish the income tax and the IRS. Without an income tax, it becomes impossible to target a particular income group. Of the various tax reform plans, both in Congress and on the campaign trail, only the FairTax (H.R.25 / S.155) will or even can abolish the IRS. The FairTax makes the IRS superfluous, by turning over all federal tax collections to the states. The states would audit a portion of about 25 million retail businesses (as they currently do in 45 states) and a small sub-department within the Treasury Department would audit the 50 states. Nobody would audit you (unless you happen to own a retail business and then it would be the same state auditors that currently conduct your sales tax audits).

NO IRS. No individual audits. No April 15th deadline. No compliance costs. No “Soak the Rich”. The total lack of a personal or corporate income tax would draw wealth and jobs back into the USA in record numbers. With more wealthy citizens spending their money on new retail products and services, and more people working, earning a salary, and spending that money, the tax load would be spread out more, so we could all pay less tax. Everyone wins… except the illegal aliens, who would be at a significant tax disadvantage, compared to entry level working citizens. The FairTax would be a WIN-WIN-WIN situation.

For more detailed information on this ominous trend, read, “The Rich Don’t Pay Tax! …Or Do They?”, available in print and popular ebook formats on Amazon, Barnes and Noble and through other booksellers or click one of the links on the left side of this page.