Some $1.4 trillion in individual income taxes are due to the
IRS on April 15. But for many Americans, that’s only the half of
it. A new
report from the U.S. Congress’s Joint Committee on Taxation shows
that looking only at income taxes misses most of what we pay to the
federal government each year.
The average American pays an income tax rate of 10.1
percent, the Joint Committee shows, although that varies quite a bit
depending on income: The official income tax rates start at 10
percent and go all the way to 39.6 percent. The Joint Committee is also
accounting for lots of income that never gets taxed, such as Medicare
and Social Security benefits, employer-paid insurance, and the employer portion
of payroll taxes. Also, taxpayers pay the highest rates, above 28 percent,
only on earned income above $200,000 or so. The IRS takes far less from
the first $200,000 earned, especially after deductions, and from investment
income. Finally, as the chart shows, many poor Americans pay zero taxes
and even get money back: About 32 million people benefit from that Earned
Income Tax Credit.
Just looking at income taxes can be misleading, however. All
salaried workers also pay a 7.65 percent payroll tax to cover Social
Security and Medicare, and higher earners owe another Medicare tax. Their
employers also must pay the same amount in payroll taxes for each worker. The
government collected $1 trillion from payroll taxes last year:
Wealthy Americans end up paying taxes at a lower rate
than poor and middle-class Americans, because the government
collects Social Security tax only on annual wages up
to $118,500. On top of individual income and payroll taxes, the
federal government collects $93.4 billion in excise taxes on such things
as fuel, cigarettes, alcohol, and plane tickets. The feds take 7.5
percent of every airline fare, plus $4, for example; the gas tax is currently
18.4¢ per gallon.
Add up all the categories of taxes paid by
individuals—income, payroll, and excise—and this is what each income group
will end up paying this year, the Joint Committee estimates: The tax
burden rises progressively with income, with the wealthiest
paying a third of their income to the federal government. One exception to the
tax rate's steady rise through the income brackets: Americans who earn less
than $10,000 per year, who don’t get enough from their earned income tax
credits at tax time to make up for the payroll and excise taxes they pay all
year.
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