"The Rich Don't Pay Tax! …Or Do They?" IRS Data Update for 2012

Important FY2014 Tax Data Update

New IRS Data proves the rich really do pay tax… and lots of it.
(Released:  2016)

John Gaver - Author of "The Rich Don't Pay Tax! …Or Do They?"
John Gaver
The Rich Don't Pay Tax! ...Or Do They? Book Cover

 

 

 

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US National Debt
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Surprise! The rich really do pay income tax?

It is a common misconception that the wealthy take advantage of so many tax loopholes that they end up paying little or no federal income tax, leaving the rest of us to foot the bill. This fallacy has been created by tax and spend politicians and fostered by a headline-hungry media,

You hear it everywhere. It has become a mantra for Democrats and even moderate Republicans (Republicans in name only).

"The rich don't pay their fair share of taxes!"

That mantra echoes through the halls of Congress to the point that the echo doesn't die out, before someone else repeats it again. We're told all the time that the rich get tax breaks that allow them to pay little to no taxes at all.

But it's all a hollow lie.

The truth is that if you believe that the rich don't pay tax, you've been deceived through the use of a proven debate tactic referred to as "argumentum ad infinitum". Basically, what the means is, if you repeat a lie often enough and with enough conviction, that lie will eventually take on an undeserved air of truth.

The truth of the matter is clearly exposed in new IRS Collections Data, released on October 29, 2015. That official data proves beyond any doubt whatsoever, that the often reiterated mantra that the rich don't pay tax, is an unqualified, "LIE!"

This most recent annual release of IRS Collections Data unmistakably shows that, not only do the top 1% of taxpayers pay tax at a higher average rate than those with lower incomes, but as in previous years and contrary to the popular narrative, the rich pay far more than their share of taxes, based on their share of income earned. To be more specific, the top 1% of income earners pay DOUBLE their share of personal income tax.

You read that right -

The top 1% pay DOUBLE their share in income tax!

The new IRS Collections Data shows that in 2014 (the last year reported), the top-earning 1% of taxpayers earned 20.58% of all individual income earned in the USA, but paid 39.48% of all individual income taxes that were actually collected by the IRS. So do the math.

  39.48% of taxes  
20.58% of income  = 1.9 times their share

We're not talking about billionaires or even people who earn millions of dollars a year. While it's true that some of that top 1% will be really rich, this IRS Collections Data also shows us that the income floor, necessary to be in the top 1% in 2014, was only $465,626. Moreover, that top 1% is made up of less than 1.4 million taxpayers.

For the top 5% of income earners, the tax numbers are not that different. To be in the top 5%, one must earn only $188,996 and that group pays 1.7 times their share of taxes, based on income.

But here are the really amazing numbers. To be in the top 10% of income earners one must earn a mere $133,445. Sure, that's a nice income. But it's not enough to call that person rich. Even IT directors can easily earn that much. A good new car salesman can make that much. Some New York City garbage collectors make over $100,000. Of course, every member of Congress makes well over that amount.

We're not talking about billionaires. Most of these people are just ordinary people who have worked hard and most would probably be surprised to learn that they're in the top 10% of income earners. But this group pays more than 1.5 times their share of federal personal income tax, based on their share of income earned.

If you've read "The Rich Don't Pay Tax! …Or Do They?" then you know that a good portion of the calculations in that book are based on annually published IRS Collections Data by Income Percentile. As mentioned in the book, the IRS releases new collections data by percentile every year, on a very loose schedule.

On October 21, 2016, the 2014 Collections Data, detailing the amount of personal income tax collected in that year, broken down by income percentile, was posted to the IRS website. This new data demonstrates that the disturbing trends you learned about in the book, concerning tax inequity, is continuing. While we all like to be right, this is one of the times when it really bothers me that I was right.

(Note that the availability of these spreadsheets have not yet been formally announced by the IRS. This leads us to assume that the data in this file may be preliminary and could change slightly, in the officially released version of this file. However, any changes are not expected to be significant, since the data in this spreadsheet is well within expected ranges.)

Before going into the implications of this new data, it should be pointed out that the following table represents just the 2014 portion of the multi-year data found in those new multi-year spreadsheets. Also note that the data for the top 400 taxpayers comes from a different IRS report that is released on a different schedule. The most recent top 400 data was released on November 30, 2016 and announced shortly thereafter. This third spreadsheet covers through the 2014 tax year.

2014 IRS Collections Data
Number of
Returns
(000)
AGI
(000,000)
Income
Taxes
Paid
(000,000)
Group's %
Share of
Total AGI
Group's %
Share of
Total Taxes
Group's
Avg. Tax
Rate (%)
Income
Floor for
Group
All
Taxpayers
139,562
9,708,663
1,374,379
100.00
100.00
14.16
(NA)
Top 400
400
127,127
29,405
1.30
2.13
23.13
126.8MM
Top 1%
1,396
1,997,819
542,640
20.58
39.48
27.16
465,626
Top 5%
6,978
3,490,867
824,153
35.96
59.97
23.61
188,996
Top 10%
13,956
4,583,416
974,124
47.21
70.88
21.25
133,445
Top 25%
34,891
6,690,287
1,192,679
68.91
86.78
17.83
77,714
Top 50%
69,781
8,614,544
1,336,637
88.73
97.25
15.52
38,173
Bottom 50%
69,781
1,094,119
37,742
11.27
2.75
* 3.45
(NA)
(* Taken from a related IRS spreadsheet)

The primary source file for the above table contains data starting in 2001 and continues through 2014. It can be found on the IRS website at:
http://www.irs.gov/file_source/pub/irs-soi/14in01etr.xls

This spreadsheet is decreasing cumulative percentiles (top-down).

Certain data for the bottom 50% comes from a related IRS spreadsheet that can be found at: http://www.irs.gov/file_source/pub/irs-soi/14in02etr.xls
This spreadsheet is increasing cumulative percentiles (bottom-up). Such data is marked with an asterisk, above.

The source for the 2014 top 400 taxpayer data is a PDF report ranging from 1992 through 2014. It can be found on the IRS website at:
http://www.irs.gov/pub/irs-soi/14intop400.pdf

It should be noted that beginning with the 2010 IRS Collections Data, the IRS began a new methodology of reporting this data. In particular, all individual income tax returns except returns of dependents are now used in the computation, whereas previous releases were based on only returns with positive AGI. The resulting data shows very slight changes in the actual percentages. For example, the 2009 data shows a very tiny 0.1% difference in tax versus income inequity. In other words, the changes are largely insignificant. But you should be aware of this change, nonetheless.

The trend continues.

Once again, this data shows that the top income earners pay a far greater percentage of the total tax load than justified by their percentage of total of US personal income earned. As mentioned above, the top 1% of income earners pay double their share in taxes, based on their share of income earned. So compare that with the bottom 50% of income earners, who earned 11.27% of the income, but paid only 2.75% of the taxes collected. In other words, they paid just 24% of their share of tax, based their share of total income.

But let's take it one step further. An examination of both spreadsheets reveals that the top 1% of taxpayers, in 2014, paid more in U.S. income tax ($542,640 million) than was paid by the bottom 90% of taxpayers ($400,255 million).

Crocodile Tears

Don't shed any crocodile tears for the wealthy. If your attitude is, "Who cares about the rich? They can afford to pay more tax", then you need to re-think your position. That's because the rich can also afford to live wherever they want. If you punish them for success, they'll just take their money and the jobs it creates, to a more success-friendly jurisdiction and leave behind their share of the tax load, to be paid by those of us who remain.

Let me reiterate this important point. When the people who pay the lion's share of taxes and who create almost all of the jobs leave, those who remain will be expected to make up the difference in taxes… and do so with fewer jobs and less income. They (we) will be saddled with a National Debt that will be north of $25 Trillion and nobody left with money enough to pay it off. That's a real fiscal cliff.

If you think that won't happen, think again. Based on quarterly reports, published in the Federal Register, since Barack Obama took office and began his "Soak the Rich" agenda, 2015 Renunciations of Rich U.S. citizens exceeded all 8 years under Bush. That flight of wealthy taxpayers is happening as I write this. Wealthy U.S. citizens, in record numbers, are walking into U.S. embassies and consulates all over the world, handing in their passports, paying the Bush Exit Tax (part of the Heroes Earnings Assistance and Relief Tax Act), and leaving behind all future U.S. tax liability on non-U.S. sourced income. For the record, the renunciation rate for the wealthy, in 2015, was more than 2,000% that of the renunciation rate Obama inherited.

Note that to be on the Federal Register lists of those who renounce U.S. citizenship, from which the count of expats is taken, one has to have had an average tax liability of more than $161,000 per year, for each of the previous five years or have a net worth of more than $2,000,000 at the time of renunciation. Then consider that, if we calculate backwards, an individual who has an income tax liability of $161,000, probably has an income in excess of $700,000 per year. That would place such a person in about the top one-half percent (1/2%) of taxpayers. In other words, that 2,000% increase in formal renunciations represents almost exclusively those who make up the top one-half percent (1/2%) of taxpayers.

But for every formal expatriation, thousands of Americans just "drop out." They become what is popularly termed, "Practically Transparent" (PT). They don't renounce. They just don't tell the U.S. government where they're going. They just acquire citizenship in some more success-friendly jurisdiction, move themselves and their money offshore and stop paying U.S. taxes. Sure, under U.S. law, if they have not formally renounced, then what they're doing is illegal. But people who do that have no intent of ever returning to the USA and since they're taxpaying, job-creating citizens of another country that won't extradite them for failure to pay U.S. taxes, they don't seem to be particularly concerned. Furthermore, as shown in "The Rich Don't Pay Tax! …Or Do They?", there are millions of them.

Remember too, as also detailed in the book, Zogby reported that more than 3 million US citizens "relocate" offshore every year. Of course, since the poor can't afford to leave all of our social programs behind, we have reason to believe that most of those 3 million people who are relocating offshore are at least upper middle class taxpayers.

Many of those who move offshore, initially do so, with the full intent of returning. Many move for work, as my family did when we lived in London. Most such expats, fully expected to return. Others are fleeing exorbitant taxes on the wealthy. They may or may not have planned to return. But whatever their reason for moving abroad, most of those 3 million U.S. citizens abroad are finding that, due to the Foreign Accounts Transaction Compliance Act (FATCA), U.S. citizens can no longer open a bank account in the country where they live and work.

U.S. citizens, living around the world have been told by their banks, that their money is no longer wanted in the bank, because eliminating their U.S. citizen customer base is the only way the banks can comply with FATCA and retain their reputation for banking privacy that the rest of their customers expect. So FATCA is exacerbating this expatriation among all U.S. citizens abroad, across the income spectrum. But think about it… What percentage of U.S. citizens abroad do you think are poor. Certainly, not all are rich. But since poor people can't afford to move abroad, it means that when many of these Americans abroad choose to renounce their U.S. citizenship, their income level is probably skewed toward upper and middle income taxpayers, which only makes matters worse.

All of this means that the middle class and the poor will have to pick up the slack in taxes and job creation in the USA, as more and more of the rich leave. Now before you dismiss that as a problem, just ask yourself this very important question:

"When was the last time you heard of anyone getting a job from a poor person?"

Put this all together and you have the makings of an economic disaster of epic proportions, for "Main Street" USA. Make no mistake. "Soak the Rich" will hurt the middle class and the poor far more than it will hurt the wealthy, IF it hurts the wealthy at all.

I remember my karate instructor telling us that the only thing better than blocking a blow, was to avoid it entirely - to not be where the blow is aimed, when it gets there. This works for the wealthy, concerning taxes, as well. The wealthy have the means to simply avoid any overly aggressive attack from our tax-hungry government and, as these numbers so strongly indicate, many are already doing just that. They're avoiding being a target, by taking their money, their jobs and themselves to a more success-friendly jurisdiction.

If you don't entirely grasp the severity of what you just read, then you probably haven't read, "The Rich Don't Pay Tax! …Or Do They?"

Click one of the links on the left or below, to order your copy now.

All of this is explained in the book, in much greater detail than we have room for here, along with lot's more statistical information. After reading the book, you'll understand even more clearly, just how severe the problems are that face this nation. Of course the book also provides a thoroughly vetted solution for this problem and more.

Order your copy now.

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