Special Commentary

Income Tax Analysis: Who Pays?

Thu, Nov 15 2012, 07:56 GMT
by Michael A. Brown , John Silvia | Wells Fargo

This election cycle has been dominated by discussions about tax reform. In particular, who is paying the largest share of taxes? We explore the IRS data to answer this question.

Two Ways to Measure Who Pays the Most

Individual tax collections are an essential component of the functioning of the federal government. Of all the revenues collected by the federal government, individual income taxes make up the largest share at 47 percent of total federal government revenues (top chart). The most reliable source of tax collections data is the IRS’s annual tax statistics data. We will look at the 2010 tax data in two ways in order to gauge which income brackets pay more in income taxes. The first metric is the share of total income taxes paid by each income level. The second metric is the total taxes paid by each income level as a share of total adjusted income. While somewhat different than effective tax rates, this metric accounts for the large differences in number of taxpayers across income groups as well as the income earnings across these groups.

The first of these metrics is the percent of total income taxes paid (middle graph). Using this metric we can clearly see that those earning $200,000 or more a year pay 52.2 percent of all income taxes, but only earn 28.2 percent of the total adjusted income produced in the country. In contrast, those individuals making between $50,000 and $200,000 per year in adjusted gross income make 50 percent of the nation’s total income, but only pay 41.1 percent of all the individual income taxes collected. The bottom income group ($0-$49,999) earns 22 percent of the nation’s income and pays 6.6 percent of total income taxes.
Another way to look at the disparities in taxes paid across the income spectrum is to compare the aggregated total amount of taxes paid as a share of adjusted gross income by each income group. The greatest number of taxpayers is in the $50,000-$199,999 income bracket which in aggregate has paid 10 percent of their income in taxes (bottom graph). In contrast, the top income bracket in aggregate paid around 22 percent of their adjusted gross income in taxes, while the lowest income bracket paid 3.6 percent of their income in taxes.

Published On Thu, Nov 15 2012, 08:01 GMT Previous entries

Michael A. Brown

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Michael Brown is an economist for Wells Fargo Securities. Based in Charlotte N.C., he is responsible for tracking national and regional economic trends. He also writes for the company’s Weekly Economic & Financial Commentary, and provides analysis and commentary on the national economy, business investment and state budget issues.

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John Silvia

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John Silvia is a managing director and the chief economist for Wells Fargo. Based in Charlotte, N.C., he has held his position since he joined Wachovia in 2002 as the company’s chief economist. Prior to his current position, John worked on Capitol Hill as senior economist for the U.

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There are currently over 500 firms that act as NASDAQ Market Makers. One of the major differences between the NASDAQ Stock Market and other major markets in the U.S. is NASDAQ's structure of competing Market Makers. Each Market Maker competes for customer order flow by displaying buy and sell quotations for a guaranteed number of shares. Once an order is received, the Market Maker will immediately purchase for or sell from its own inventory, or seek the other side of the trade until it is executed, often in a matter of seconds. Market Order An order to buy or sell a stated amount of a security at the best price available at the time the order is received in the trading marketplace. Specialists Specialist firms are those securities firms which hold seats on national securities exchanges and are charged with maintaining orderly markets in the securities in which they have exclusive franchises. They buy securities from investors who want to sell and sell when investors want to buy. 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