#3: How Much Income Taxes the Rich Pay
The M & M: The rich don’t pay income taxes. Or, in the words of Leona Helmsley, “Only little people pay taxes.”
Wrong! While many rich people escape paying taxes or pay very little, the rich as a group pay a much higher percentage of all income taxes than does any other group.
Consider the top 1% of all income earners. For the year 2007, the top 1% paid 36.1% of all income taxes. What's more, their share of all income taxes had increased by 40% since 1986, when they paid 25.8% of all income taxes.
On the other hand, their share of all income before taxes increased by 71% from 1986 to 2007--from 11.3% in 1986 to 19.3% in 2007.
The Top 1% of Income Earners:
| 1986 | 2007 | |
| Share of income: | 11.3% | 19.3% |
| Share of income taxes: | 25.8% | 36.1% |
You can see from these figures that their share of income taxes was considerably greater than their share of all income both in 1986 and in 2000. And here's one final set of numbers: Their average income tax rate declined from 33.1% in 1986 to 19.2% in 2007. This decline was in large part because of the 2003 tax cuts under President Bush, which reduced the top tax rate on dividends from 35% to 15% and reduced the top tax rate on capital gains from 20% to 15%.
In other words: The top 1% bore a very high percentage of all income taxes in 2007, far more than was true in 1986. But the top 1% also was considerably better off in 2007 than it was in 1986 because it had much more income, and that income was subject to far lower income tax rates.
The 2007 figures are based on "Current-Law Distribution of Federal Taxes by Cash Income Percentiles, 2007," estimates of the Tax Policy Center, November 30, 2006.