Warren Buffett and Mitt Romney have managed to create one of the enduring myths of our tax debate: that the rich pay a lower rate than the rest of America.
This may be individually true. Buffett pays a lower rate than his secretary and Romney pays a lower rate than most of us who make our living from salaries. But nationally, the tax code is still broadly progressive. The more your make, the more taxes you pay as a percentage of your income.
According to new data from the IRS for the year ending 2010:
- People who make $1 million or more had an average tax rate of 20.4 percent.
- Tax filers who earned $30,000 to $50,000 paid an average rate of 4.8 percent.
- People who made between $50,000 and $100,000 paid 7.7 percent.
- Those making under $30,000 had a negative effective rate, meaning they paid no federal income taxes after deductions and credits.
According to the IRS, average tax rates increase as income increases — until you get to around $1.5 million in annual income. Once you make $2 million, average tax rates start to decrease. The average tax rate peaks at 25.1 percent for those making between $1.5 million and $2 million.
The millionaires who pay the highest average tax rates in America are those who make between $1.5 million and $2 million. That $2 million could be called the “Top Turning Point” on the income ladder, where rates reverse. Once you get above $2 million, your share of income from investments increases. Investments are generally taxed at the 15 percent capital-gains rate, compared with the top ordinary-income rate of 35 percent.
Both sides of the current political debate on taxes will no doubt see these data differently. The right will say that the rich already pay more than their fair share, while the left will point to the low rates paid by the wealthy relative to the official tax rates.
But the figures show that the more you make, the more you pay — up to the Top Turning Point.
Facts don’t lie but politicians do!
Source: CNBC, Inside Wealth
“These six things doth the Lord hate: yea, seven are an abomination unto Him. A proud look, a lying tongue, and hands that shed innocent blood. An heart that deviseth wicked imaginations, feet that be swift in running to mischief, a false witness that speaketh lies, and he that soweth discord among brethren.” Proverbs 16-19
