NCPA - National Center for Policy Analysis

THE TOP 1% PAY 35%

December 20, 2006

Maybe liberals are onto something.  They keep saying the rich should pay more taxes, and it turns out the rich already are!  That's one of the valuable lessons from the IRS's annual study of income tax data, just released for 2004, says the Wall Street Journal.

  • Americans who earned more than $1 million in adjusted gross income paid $178 billion, or an average of $740,000 per filer, in income taxes in 2004.
  • That's up about one-third from 2002, the year before the Bush tax cuts in marginal income-tax and dividend and capital gains rates.
  • The wealthiest 1 percent of tax filers paid a remarkable 35 percent of all individual income-tax payments that year.

Some will claim that this merely shows that the Bush tax cuts made the rich richer.  In fact, the Statistics of Income data reveal that there were more Americans filing taxes in every income category from $50,000 and up in 2004.  In other words, Americans across income categories were (and are) making more money thanks to the buoyant economy spurred in part by the tax cut.

The 2004 tax and income statistics also show that reported taxable income rose from 2002 to 2004 despite the cuts in tax rates:

  • Reported taxable income from those in the highest tax bracket rose by 39 percent; dividend income was up 42 percent, and income reported from capital gains nearly doubled (up 98 percent).
  • As for capital gains tax collections, they were roughly 50 percent higher in 2004 than before the tax cut.
  • Another chestnut of good news is that small business net income surged 24.4 percent in 2004 from a year earlier.

Source: Editorial, "The Top 1% Pay 35%," Wall Street Journal, December 20, 2006.

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