The U.S. has a progressive income tax system. Therefore, the rate of tax increases as taxable income increases. The purpose of imposing progressive taxes is to reduce the tax incidence of people with a lower ability to pay taxes, as these taxes shift increasingly to those with a higher ability-to-pay. Thus, the bulk of tax revenue is in high-income households.
Statistics just released by the IRS show that the top 1% of households received more than 20% of adjusted gross income in 2014 while paying almost 40% of income taxes. Less than 4% of income tax is paid by the bottom 50% of households. Federal tax rates in 2015 varied from 10% to 39.6%.
However, these statistics do not include payroll taxes, nor do they include state and local taxes. Some states and local municipalities impose an income tax at a graduated rate, and some at a flat rate on taxable income. Those that are much flatter and regressive have a much more significant impact on middle-class and poor families.
Some tax experts would counter that these statistics do not include untaxed economic income. For example, higher-income households receive most of the tax-exempt interest that is excluded from AGI and taxable income. These households receive most of the capital gains income and are more likely to overstate basis and understate taxable gains, resulting yet again in lower AGI/taxable income determinations. These richer households also receive, and able to exclude much larger gains from sales of their homes and are likely to sell homes and take advantage of exclusions much more often than lower-and-middle-income people.
Many provisions of the Internal Revenue Code are complicated. Proper interpretation of the rules and regulations contained in these provisions requires the assistance of an experienced and knowledgeable tax professional, who may also assist any individual or business assess their current tax situation as it stands in the present looking ahead to the future. Call THE TAX EXPERTS AT THE Thorgood Law Firm www.thorgoodlaw.com. For a FREE consultation, call 212-490-0704.
