Sharing the Income Tax Burden in America
By SURENDRA K. KAUSHIK
A look at IRS
aggregate data on individual income from 1991 to 2009 reveals that about 50
percent (44 percent of all tax returns to
be exact) of individual tax payers paid 2 percent of the total individual
income tax collected in 2004 and less
than 1 percent in 2009 for which we have the latest data. The per capita income in 2005 was $25,035
according to the 2005 Census so it is consistent that about half of Americans
had that level of income reported on their tax returns. The distribution of
adjusted gross income and tax collected from each income group is as follows.
Personal Income group Percentage
of AGI Percentage of Tax Collected
1991
1996 2001 2004 2009 1991 1996 2001 2004 2009
Less than $25,000 21
16 11 17 9 10
5 3 2
1
$25,000 to
$50,000 30
23 19 16 16 24
16 11 9 6
$50,000 to $100,000 28
30 30 27
28 30
27 24 21
18
$100,000 to $500,000 15 21
27 26 34
24 30 36
38 45
$500,000 and above 6
10 13 14 13
12
22 26 30 30
Total 100 100 100
100 100 100 100
100 100 100
Overtime the lowest income group
has significantly reduced its burden from over 9 percent in 1991 to only 2
percent in 2004 and 1 percent in 2009. It has reduced its tax burden by 99
percent from 1991 to 2009. The income group from $25,000 to $50,000 has reduced
its tax burden by 60 percent in 15 years and essentially to zero in 2009- the
year for which IRS has latest data on its web site.
The $50,000 to $100,000 group had their
share of income and taxes remain stable with a slight decrease in taxes. The
richer group in $100,000 to $500,000 bracket experienced a 60 percent increase
in and the people in $500,000 and above had their taxes go up by 150 percent in
fifteen years as their share of income increased by one hundred and thirty
three percent
It is clear that the normatively desired
progressive nature of the US personal income tax system has been effective as
personal incomes have grown in the aggregate and grown more for the higher
income brackets. The average tax rates paid by people in the $100,000 and above
groups approaches (or exceeds) the marginal tax rates in the system.
In recent years we have been collecting about
15 percent and spending about 24 percent of GDP – an impossible situation to
continue. How to bridge the gap? We
collected 21 percent in 2004 so we could go back to that by raising taxes on
income above$100,000 by setting a minimum percentage to be paid between $100,
000 to $500,000 (say 25 percent) and $500,000 and above (say 30 percent) and
reduce unnecessary and inefficient spending wherever possible in the budget This new system of taxing and spending
could help us balance the budget in 2016-2017 and have surpluses beyond 2017.
If growth picks up
to 4% and higher and unemployment goes below 6 percent, the federal budget can
be balanced in 2016-17 through a combination of additional revenues from growth
of the economy, new taxes on higher incomes ($100,000 and above) and spending
cuts when a new president assumes office in January 2017.
If growth continues for the next forty years
at four percent, the national debt in 2016-217 can be stabilized at $19
trillion (or less) and brought down to zero in 2054-2055 with an annual
retirement of the debt by $500 billion on the average from 2017 to 2055.
Surendra K. Kaushik
is professor of finance at Pace University in New York
and Westchester (skaushik@pace.edu)
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