Top 20% of Americans Will Pay 87% of Income Tax
Households with $150,000 or more in income make up 52% of total income nationally but pay large portion of total taxes
The individual income tax matters a lot because it is the largest single source of U.S. revenue.
Photo:
Rogelio V. Solis/Associated Press
The individual income tax matters—a lot—because it is the largest single source of U.S. revenue. And its share has risen in recent years. For 2018, it could raise 50% of total federal revenue, according to estimates from Congress’s Joint Committee on Taxation, up from about 48% last year.
So who pays what share of this tax?
IRS data aren’t available until long after people file, so estimates for 2017 and 2018 come from the Tax Policy Center, a nonpartisan research group.
They divided about 175 million American households into five income tiers of roughly 65 million people each. The income includes earnings from wages and investments plus untaxed amounts, such as from health coverage. These additions nearly double the income of people in the lowest tier and add about 20% for those in the highest tier.
Top Earners
The top 1% and 0.1% of taxpayers will see their share of income taxes rise in 2018.
Share of 2018 income tax
by income percentile
share of
income tax
Share of 2018
Total Income
income
group
80 to 90%
$150,000 to
$217,000
50%
13.4%
2017
14.0%
’18
12.7
Top 1 percent
40
90 to 95%
$217,000 to
$310,000
11.2
9.7
11.2
30
95 to 99%
$310,000 to
$730,000
Top 0.1
percent
21.0
12.7
19.6
20
95-99%
Bottom
80%
Top 1%
Above
$730,000
38.0
15.9
80-90%
43.3
10
90-95%
Top 0.1%
Over
$3.2 million
18.9
share of total income
7.6
22.0
0
50%
40
30
20
10
Note: Income ranges are rounded. The top 1% includes the top 0.1%.
Source: Tax Policy Center
By contrast, the lower 60% of households, who have income up to about $86,000, receive about 27% of income. As a group, this tier will pay no net federal income tax in 2018 vs. 2% of it last year.
After the income tax, the most important revenue raisers are for social insurance, such as Social Security and Medicare. They will provide about 34% of the total tax take this year, according to the Joint Committee on Taxation. Corporate taxes will account for 7% of revenue, down from 9% in 2017. The rest of the total comes from excise taxes, estate and gift taxes, and other sources such as customs duties.
A Bigger Slice
While lower-earning Americans will pay a smaller share of income tax next year, higher-earners will pay a larger share.
2017
2018
Up to $25,000
Share of Income tax
–2.1%
–2.5
Share of total income
2017: 4.4%
2018: 4.4%
$25,000 to $48,000
Share of Income tax
–1.1%
–2.0
Share of total income
2018: 8.7%
2017: 8.7%
$48,000 to $86,000
Share of Income tax
5.3%
4.3
Share of total income
2018: 14.2%
2017: 14.2%
$86,000 to $150,000
Share of Income tax
14.3%
13.2
Share of total income
2018: 20.7%
2017: 20.8%
Over $150,000
Share of Income tax
83.6%
86.9
Share of total income
2018: 52.2%
2017: 52.1%
Note: Income ranges are rounded and are based on quintiles. Each quintile includes about 65 million people.
Source: Tax Policy Center
Roughly one million households in the top 1% will pay for 43% of income tax, up from 38% in 2017. These filers earn above about $730,000.
According to Roberton Williams, an income-tax specialist with the Tax Policy Center, the share of taxes paid by the top 5% will rise despite the fact that people in it were the largest beneficiaries of the overhaul’s tax cut, both in dollars and percentages.
To be sure, this analysis doesn’t include the flow-through effects of corporate-tax cuts, which benefit higher earners more than lower earners, or the doubling of the estate-tax exemption to about $11.2 million per person. Neither levy is part of the individual income tax.
Why are income taxes negative for the 77 million households in the bottom two tiers, which earn 13% of income? In recent decades Congress has chosen to funnel benefits for lower earners through the income tax rather than other channels such as federal programs. Some of these, such as the earned-income tax credit for the low-income workers, make cash payments to filers who don’t owe income tax.
The tax overhaul further lowered the share of income tax for people in these tiers, in part because it nearly doubled the standard deduction and expanded the tax credit for children under the age of 17.
People in the lower tiers do owe other federal taxes, such as for Social Security and Medicare. If these tax payments are included, their share of federal taxes paid turns positive.
The share of tax paid by the top 20% of Americans also changes when social-insurance levies are included. It drops to about 67% of federal taxes from roughly 87% of income taxes.
