Millionaires Pay Less in Federal Taxes? Not According to the Federal Government

Middle class Americans have been told by politicians and Warren Buffett that the rich pay less in Federal Taxes than the average Joe. Not so, according to a report by the Tax Foundation and their compilation of statistics from the Bureau of Economic Analysis, U.S. Census Bureau, U.S. Bureau of Labor Statistics, and Centers for Medicare and Medicaid Services.

Before breaking down the tax system by class, one should note that Mr. Buffett, CEO of Berkshire-Hathaway, draws an honorary salary of $100,000 per year. This number, not his net worth is subject to income taxes. The majority of his funding is a result of capital gains and dividends on investments. On this amount he pays 15%. This last indicator is money paid on funds taxed once before. Warren Buffett is hardly the average, millionaire tax payer.

To accurately assess the amount of federal taxes paid per income class, one must consider which class receives the most government spending per dollar taxed. Outgo plus income equals an accurate assessment of taxation and those that pay versus those that receive.

In a report by the Tax Foundation for 2004, the lowest-earning households (approximately 1/5 of all U.S. households) received $8.21 in government spending for every dollar they were taxed. Middle income families benefited by $1.30 per tax dollar given, and the highest wage earners (over $200,000 annually) received 41 cents on the dollar spent.

The Tax Foundation is a non-profit, non-partisan research and public education organization located in Washington D.C. Six annual reports are released annually. The foundation has monitored tax and fiscal activities for all levels of government since 1937.

Based on total taxes (State and Local, plus Federal) the following breakdown represents the amount paid by each class per year. The following calculations were for the income reporting year of 2004.

$23,700 and less paid $11,932

$42,305>$23,701 paid $21,194

$99,502>$42,306 paid $81,933

This is an average calculation not including Federal benefits acquired. The fact remains, government spending targeted at the lowest-earning 60% of U.S. households is larger than the Federal, State and Local taxes paid per that class.

The amount of redistributed funds paid by the upper class in 2004, was estimated between $1.03 trillion and $1.53 trillion. This is a far different picture than politician would like the populace to believe.

According to the Internal Revenue Service, the top 10% of earners pay 70% of Federal Income Taxes. In 2008, the Internal Revenue Service reported that those making $1 million or more, paid an estimated 38% of all federal income taxes while the bottom 50% paid only 3%. 49% of U.S. households paid no federal taxes.

In 2011, households making $1million or more will pay an average of 29.1% in federal and payroll taxes. Households making between $50,000 and $75,000 will pay approximately 15% of their income in taxes. (Source: Tax Policy Center – Washington D.C.) This projection also questions politician’s statements of inequality when it comes to paying Federal Income Tax.