The recently released IRS study on the richest 400 taxpayers in 2007 reveals that they had incomes which averaged $345 million each in 2007. David Cay Johnson analyzed the IRS data to determine their effective average federal tax rate, including both income and payroll taxes.
On average, the 400 highest income taxpayers paid 16.6% of their income in federal taxes in 2007.
Let's compare that to the taxes paid by some of the low and moderate income taxpayers eligible to have their taxes done at our VITA site. The top income eligible for VITA assistance that year was around $40,000.
I used the NBER's TaxSim model to calculate total federal tax bills for a middle-aged single person with no dependents. Let's call our representative taxpayer "Joe." As is typical of taxpayers in his demographic, we'll assume his income comes almost entirely from wages. To make our figures for Joe comparable to David Kay Johnson's analysis, I included used 2007 tax law for both income and payroll tax calculations.
Here are the effective tax rates we get at different income levels.
At an income level of $10,000 per year, Joe paid 13.5% of his income in federal taxes.
At an income level of $20,000 per year, Joe paid 20.2% of his income in federal taxes.
At an income level of $30,000 per year, Joe paid 22.9% of his income in federal taxes.
At an income level of $40,000 per year, Joe paid 24.2% of his income in federal taxes.
So, once he hit $40,000 in income, Joe was sending almost one out of every four dollars he made in 2007 to the federal government.
Compare that to the top 400 taxpayers. They were only sending in 16.6%, about one out of every six dollars they made in 2007 to the federal government.
A few important notes: the average tax rates for the richest 400 would be even lower if we measured their income more accurately because the IRS denominator figures do not include unrealized capital gains. Also, Joe's tax bills and average tax rates would be lower if he were elderly or if he had dependents, especially if those dependents were children, or if he had been a homeowner, etc.
But we have quite a few taxpayers at our VITA site every year who look a lot like Joe: single, no dependents, no special tax breaks, income entirely from wages. And those "average Joes" still pay a much higher tax rate than the richest taxpayers!