Opinion from a Libertarian ViewPoint

Who Pays Income Taxes: Tax Year 2018 – Foundation – National Taxpayers Union

Posted by M. C. on January 1, 2021

by Demian Brady


Many left-leaning politicians have argued that the tax system is rigged to benefit those at the top and that the wealthy are not paying their “fair share” of taxes. These claims overlook the starkly progressive nature of America’s income tax code. The code has become increasingly progressive over the past several decades, and despite much political rhetoric to the contrary, the 2017 Tax Cuts and Jobs Act (TCJA) made it even more progressive by shifting a greater share of the income tax burden to the top earners.

New data from the Internal Revenue Service (IRS) for the first tax year under the TCJA confirms that even as the tax reform law reduced top marginal tax rates, the top income earners shouldered a larger share of the income tax burden, far exceeding their adjusted gross income share. Lower income earners are largely spared from income taxes and actually paid a smaller share under the TCJA’s reforms.

New Data Highlights Progressivity of the Income Tax Code under the TCJA

Each fall the IRS’s Statistics of Income division publishes data showing the share of taxes paid by taxpayers across ranges of Adjusted Gross Income (AGI). The most recent release covers Tax Year 2018 (filed in 2019).[1] This is the first year of reported data under the changes in the TCJA which lowered tax rates, nearly doubled the standard deduction, and expanded the child tax credit.

The new data shows that the top 1 percent of earners (with incomes over $540,009) paid over 40 percent of all income taxes. Despite the tax rate reductions associated with TCJA, this figure is up slightly from the previous tax year’s 38.5 percent share. In fact, NTUF has compiled historical IRS data tracking the distribution of the federal income tax burden back to 1980 and this is the highest share recorded over that period, topping 2007’s 39.8 percent income tax share for the top 1 percent. The amount of taxes paid in this percentile is nearly twice as much their adjusted gross income (AGI) share.

The top 10 percent of earners bore responsibility for over 71 percent of all income taxes paid and the top 25 percent paid 87 percent of all income taxes. Both of those figures represent an increased tax share compared to 2017. The top fifty percent of filers earned 88 percent of all income and were responsible for 97 percent of all income taxes paid in 2018.

The other half of earners (with incomes less than $43,614) took home 11.6 percent of total nation-wide income (a slight increase from 11.3 percent in 2017) and owed 2.9 percent of all income taxes in 2018, compared to 3.1 percent in 2017.

As NTUF reported earlier this year, the number of filers with no income tax liability increased from 2017 to 2018 to 34.7 percent.[2] The number of nontaxable returns is often related to the economy: as employment decreases and income falls, the number of filers facing no income taxes tends to increase, and vice versa. While 2018 saw a strong economy that would ordinarily increase the number of individuals with income tax burdens, the TCJA removed additional people from income tax rolls by increasing the standard deduction and expanding refundable credits.

Historical Comparison

As noted above, NTUF has compiled historical IRS data tracking the distribution of the federal income tax burden back to 1980. In that year, the income tax share of the top one percent of filers was 19 percent – less than half of what it is now (40 percent). This is despite the fact that the top marginal income tax rate was 70 percent in 1980 and has since fallen to 37 percent in 2018.[3]

On the other side of the income spectrum, the bottom 50 percent’s income tax burden has been significantly reduced over the past forty years. In 1980, it stood at 7 percent. That dropped to a low of 2.4 percent in 2010 during the recession. As the economy gradually improved after the recession, the tax share of this income group gradually increased to 3.1 percent in 2017. Although the economy remained strong in 2018, this group’s tax share fell from the previous year. This can be attributable in part to the lower rates and higher standard deduction enacted in the TCJA along with its additional provisions designed to ease burdens low-income earners such as  the increased child tax credit.

The trends are clear: the code has become increasingly progressive, and when people are allowed to keep more of their own money, they prosper, move up the economic ladder, and pay a bigger part of the income tax bill for those who aren’t.

Tax Cuts and Tax Fairness

Democratic party leaders have taken rhetorical shots against tax reform bill since it was introduced back in 2017. During the debate, Speaker of the House Nancy Pelosi (D-CA) went so far as to call the TCJA the “worst bill in the history of the United States Congress.”[4] Senate Minority Leader Chuck Schumer (D-NY) also disparaged the bill as a “product that no one can be proud of and everyone should be ashamed of.”[5]

Progressives continue to assail the TCJA in the years since its passage. A few days before the election, the Center for American Progress, a  self-described “progressive” policy institute, called the tax system “unfair” and said the results of the TCJA were a “hugely regressive tax cut.”[6]

This ignores that most taxpayers paid less thanks to the TCJA.

See the rest here

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