I’ve had some Facebook friends post informational graphics concerning tax policy and health care issues. Almost every one is published by a liberal organization in support of President Obama and liberal policies. They are designed with emotion as the foundation. Here is my first shot at a conservative image you can download and post on Facebook.
It’s possible for me to reduce the amount of text used in this snapshot, but that would not be fair to the people reading it. I can’t bring myself to create an emotional 500 pixel squared graphic with a catchy quote and a graph. The subject is not that simple.
A media refusing to spend any time on these facts does not help. Ten years ago, everyone was complaining about the 30 second soundbite, now we’re in the age of the cute Facebook graphic. Ugh.
The Facts: The really rich – those earning more than $10 million per year – pay an average federal tax rate that is well more than double the rate of the “middle class” who make between $30,000 and $200,000. As I note in the graphic, Warren Buffett paying an average tax rate less than his secretary is an EXTREME outlier. President Obama and the Democrats should not be using outlier examples to set tax policy – it’s POLITICAL THEATER.
A “billionaire” could have no earned income if she or he is retired and is investing exclusively in a checking account that pays zero interest. Their final tax rate would be zero percent … this is the reason Buffett is an outlier and Obama’s quote is of no value, except politically of course.
Click here to review the IRS spreadsheet with the raw data. It’s not hard to calculate an average tax rate. Your definition of middle class may be different, and you can take a look at column B for the Number of Returns, column J for the Taxable Income, and column N for the Total Income Tax paid for specific income ranges. My graphic combines income ranges. Break them up if you’d like.
The Average Tax Rate = Federal Income Tax Paid divided by Total Taxable Income.
As an example, there were about 108,000 families making $500,000 to $1 million in 2009, their total Taxable Income was $111.7 billion and the Total Income Tax paid for the group was $32.8 billion for an average federal tax rate of 29.3 percent.
This post was in response to the Obama quote included in a Facebook post earlier today. Sorry, mine does not have the cool graphics and stars, but you can see the graphic I’m referring to at right.
Updated with Additional Information
- The top 10 paid executives in the US seem to make a bit over $50 million a year. One outlier made $160 million in 2011.
- There are less than 500 billionaires (net wealth) in the United States. None of them even make close to $1 billion a year.
- Larry Ellison was the highest paid executive of the decade between 2000 and 2010. His total income was $1.84 billion spread out over 10 years..
- I can not seem to locate the top 10 income earners (including those earning interest/dividends) in the United States. I assume people like Buffett are on this list as most of their income is derived from investments, not executive salaries. Buffett’s taxable income was about $40 million last year.
If you calculate the Average Tax Rate using Adjusted Gross Income Less Deficit – as defined by the IRS – instead of Taxable Income you get the following…
- Earners between $30,000 and $75,000 pay an average federal tax rate of 5.8%
- Earners between $30,000 and $200,000 pay an average federal tax rate of 8.5%
- Earners making $10 million + pay an average federal tax rate of 22.1%
See how you can’t explain this in a 30 second soundbite?
A few people have suggested I skipped the $200k to $10 million range to “hide something.” They asked nicely and in retrospect, maybe I should have picked different ranges for the graphic. That said, you can run the numbers yourself at any time. That group – $200k to $10 million with a total of 3.84 million returns – had a total taxable income of $1.42 trillion and paid $380.5 billion in federal income tax. They had a 26.8 percent average tax rate.
Here is a table I created from the original. Note those earning $200k to $500k – the largest group directly effected by the increased tax rate demanded by Democrats – are paying more than double the rate of the $75k to $100k group!
Adjusted Gross Income Less Deficit is line 37 of your 1040. This is your income prior to standard or itemized deductions. AGI less your deductions equals your Taxable Income. I ran the average tax rate both ways.