Sunday, December 2, 2012

Tax Justice


You speak of tax justice. I just don't see what evidence you have to support a sense of injustice.

The IRS publishes handy spreadsheets on the taxes it collects, one of which called Number of Individual Income Tax Returns, Income, Exemptions and Deductions, Tax, and Average Tax, by Size of Adjusted Gross Income, Tax Years 2001-2010, shows various tax return items segmented into the AGI (adjusted gross income) brackets.

The chart below shows total AGI per different size of AGI. For instance, the total amount of Adjusted Gross Income for tax returns showing AGI between $100,000 and $200,000 is $1.9 trillion.  For AGI over $200,000 total AGI is $2.2 trillion, or 27% of total AGI. For AGI between $50,000 and $200,000 the total AGI is $4.0 trillion, or 50% of total AGI.

Adjusted Gross Income by Size of AGI
$ in 000
Source: IRS

AGI isn't taxable income. The next chart shows personal exemptions and deductions categorized by the same AGI brakets.

Personal Exemptions and Deductions by size of AGI
$ in 000
Source: IRS

Those with AGI $200,000 and more take about 11% of the total personal exemptions and deductions. Those with AGI between $50,000 and $200,000 take 41%, or $1.2 trillion, of the total $3.0 trillion in exemptions and deductions.

The $200,000 and above AGI groups have about 33% of taxable income, a larger share than it has of AGI. But that's because it takes fewer, as a percent of the total, exemptions and personal deductions than the lower income groups. This next graph shows how taxable income skews more to the higher income brackets. Again, it's because they take less exemptions and deductions as a percent of the total.

Taxable Income by Size of AGI
$ in 000
Source: IRS

More taxable income, multiplied by higher tax rates gets more taxes paid as a percent of the total.

Total Income Taxes Paid by Size of AGI
$ in 000
Source: IRS

You can see how this results in tax rates as a percent of AGI in the following graph. I'm guessing the rates go down in the top two brackets because of a large amount on investment income. I think it's a good guess, but a guess nonetheless. 

Total Income Tax Paid/AGI by Size of AGI
Source: IRS

So tell me. Where is the injustice you want to correct? 

There's a more important point. The money is in the middle class, $50,000 to $200,000. The more well-off have greater resources to move income and avoid taxes, those in the $50,000 to $200,000 will be targeted next. Is that justice also?


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