The data should inform policymakers that when people are allowed to keep more of their own money, they prosper, move up the economic ladder, and contribute a larger share of the nation’s income tax bill. These trends stand in stark contrast with the rhetoric about whether people are paying their “fair share.” Over the past several decades, lower income earners' share of income taxes has steadily grown smaller as the burden was shifted more and more to the wealthier. Since 1980, the income tax share of the bottom half of earners has fallen from 7 percent to 2.34 percent in 2021 (compared to 2.32 percent last year). Over the following decades, their share of income taxes increased even as the top marginal tax rates were reduced. This economic recovery coincided with a continued trend observed in historical IRS data compiled by NTUF, tracking the distribution of the federal income tax burden since 1980.īack in 1980, the top marginal income tax rate stood at 70 percent and the wealthiest one percent of earners’ share of income taxes was 19 percent. In 2021, the economy was starting to recover from the effects of the coronavirus pandemic and the shutdown of large parts of the economy, and GDP and employment levels increased as people returned to work. This underscores the complexity of the tax system and the various factors influencing tax liability across income levels. Separate IRS data highlights that over 56 million tax returns in 2021 reported no income tax liability, with 93 percent of these returns filed by individuals with incomes less than $50,000. This group includes many filers with no income tax liability either because their earnings fell below the taxable threshold or due to eligibility for tax credits that effectively reduce or eliminate income tax liability.
The other half of earners, those with incomes below $46,637, collectively paid 2.3 percent of all income taxes in 2021. Altogether, the top 50 percent of filers earned 90 percent of all income and were responsible for 98 percent of all income taxes paid in 2021. The top 10 percent of earners bore responsibility for 76 percent of all income taxes paid, and the top 25 percent paid 89 percent of all income taxes. Notably, the amount of taxes paid by this percentile is nearly twice as much as their share of Adjusted Gross Income (AGI), underscoring the progressive nature of the tax system. The newest data reveals that the top 1 percent of earners, defined as those with incomes over $682,577, paid nearly 46 percent of all income taxes – marking the highest level in the available data. The newly released report covers Tax Year 2021 (for tax forms filed in 2022). The IRS's Statistics of Income division publishes annual data showing the share of taxes paid by taxpayers across ranges of Adjusted Gross Income (AGI). Analysis of Who Pays Income Taxes TY2014.Analysis of Who Pays Income Taxes TY2015.Analysis of Who Pays Income Taxes TY2016.Analysis of Who Pays Income Taxes TY2017.Analysis of Who Pays Income Taxes TY2018.Analysis of Who Pays Income Taxes TY2019.Analysis of Who Pays Income Taxes TY2020.The latest data from the IRS shows that the top one percent of earners paid a record high percentage of income taxes in the data NTUF has collected since 1980. In fact, even as tax reforms over the years, including the Tax Reform Act of 1986 and the Tax Cuts and Jobs Act of 2017, have lowered the top marginal income tax rates, the tax code has grown increasingly progressive. This sense among many Americans conflicts with just how progressive the tax code actually is. This sense of unfairness has fueled calls for increased enforcement funding for the Internal Revenue Service (IRS) to crack down on evasion by “tax cheats.”
This sentiment is echoed by findings from a Pew Research poll conducted last April, which indicated that a significant portion of respondents feel that wealthy individuals do not pay their fair share of income taxes, with 60 percent expressing that this issue bothers them a lot. It is a common refrain from some politicians that the rich are not paying their fair share of income taxes.