TAX FOUNDATIO N TAX FEATURES November 1994 Volume 38, Number 10 Top One Percent of Income Earners Now Paying Over a Quarter of All Income Taxe s Newly released income tax data shows finding is available in tax return statistics fo r that the top one percent of income earners 1992 from the Internal Revenue Service, whic h now pay more than one quarter of all federal are analyzed in Chris Edward's Special Report individual income taxes, according to a new No. 42, "Who Pays Federal Taxes?" study by the Tax Foundation . This striking The IRS data shows that incomes grew after the recession bottomed out in Marc h 1991 . Total Adjusted Gross Income (AGI) on income tax returns rose 4.7 percent in 1992 . Chart 1 : Percent of Federal Income Taxes Paid by Yet the data also shows that the rate of growth Income Group, 1982 and 199 2 for total individual income taxes paid rose faster (6.2 percent) than the rate of growth for incomes . The top 10 percent of income earners pai d Top 1 % 9.0% well over half (57 .5 percent) of total incom e 27 .4 % taxes and the top 50 percent paid 94 .9 percent `36 .1% . 3 Top 5 % of the tax load. On the flip side, the 56 45.9 % million filers representing the lower half o f income earners paid only 5 .1 percent of all -11 48.6 % Top 10 % federal individual income taxes . "It may cos t 1 57 .5% more than it is worth to collect income taxe s 72 .5% Top 25% from this large group," observes Mr . Edwards , 78.4 % "since they pay such a small portion of th e .7 % overall tax load . " Top 50 % 92 1 94 .9 % Chart 1 shows that the proportion of income taxes paid by higher income earner s Bottom 50% 7.3 % increased dramatically over the past decade . 5 .1% For example, the top one percent of earner s paid 19 .0 percent of federal individual income 0 .0 30.0 40 .0 50 .0 60.0 70.0 80.0 90 .0 100 .0 10 .0 20 .0 taxes in 1982, but paid 27.4 percent in 1992 . Percent of All Federal Income Taxe s In fact, the proportion of total income taxes paid by high income earners (whether the to p Source: Tax Foundation . Federal Taxes continued on page 6 FRONT & CENTER A Flat Tax Will Make the Tax Code Family-Friendly Again 4-5 2 Real Income Rises Slightly, But Typical Family Still Pays Over 40 Percent of Income in Taxe s Federal, state, and local taxe s will claim 40 .1 percent of the in- Chart 1 : Real, After-Tax Median Family Income, 1980-199 come earned by a median incom e 4 two-earner family in 1994, accord- ing to the Tax Foundation's annual analysis of the typical American family's income . The study—Spe- cial Report No. 43, titled "Typical American Family Pays Over 40 Per- cent of Income in Taxes," by Foun- dation Economist Chris Edwards — documents the changing incom e and tax levels of the median two - earner family since 1980 . Two-earner married couples are used in the report because, accord- ing to Bureau of the Census data, they are the most common family type, accounting for 46 percent of all American families . (More tradi- tional one-earner families, with one spouse at home, account for 32 per- cent of all families .) The media n two-earner family will earn an esti- Source: '['ax Foundation. mated $53,354 in 1994, but after paying income taxes, social insur- ance taxes, property taxes, sales Chart 2 : Median Family Expenses, 199 4 taxes, and other taxes, this family will have just $34,728 to spend on all other goods and services after the government takes its share . Chart 1 documents changes in income and tax levels of the median family since 1980. Income for thi s typical family, observes Mr . Edwards, grew strongly during the economic expansion on the 1980s, but has stagnated throughout the early 1990s . In fact, recently re - leased data from the Bureau of Cen- sus shows that real median income s for most family types fell in 1993 , despite overall growth in th e economy . However, the real me- dian income for two-earner families has crept slightly higher over the past two years . The largest tax bite for the typi- cal family comes from the federal so- cial insurance payroll tax that is de- Housing & Househol d ducted from paychecks of bot h 15.6 % earners in the family . Working Source: Tax Foundation . Family continued on page 7 3 Foundation Honors Roth, Young at ual De This Year's Conference Explores Tax Neutrality Senator William V . Roth, Jr . (R-Del.) and John A. Young, retired Presiden t and Chief Executive Officer of Hewlett- Packard Company, will receive the Ta x Foundation's Public Sector and Private Sector Distinguished Service Awards o n November 17 at the 57th Annual Din- ner in New York City, the Foundation has announced . In addition, Thomas F. Field, Pub- lisher of Tax Notes, will receive th e second annual Tax Policy Servic e Award during the national conference . William Rot John A. Young Thomas F. Field earlier in the day . Sen h Sen. Roth and Mr . Young join a n (R-Del.) impressive list of previous award recipi- ents that stretches back to 1941, and in - Manager of the Microwave Division . starts with a 12 noon luncheon—will be cludes such notable statesmen as then - In 1968, Mr . Young was promoted Rep. Dick Armey (R-Texas), who wil l General Dwight Eisenhower, Senators to Vice President of the company, as- discuss his newly introduced proposal Robert A . Taft and Everett M . Dirksen , suming responsibility for the former to overhaul the current income tax sys- and Federal Reserve Board Chairme n Electronic Products Group. He wa s tem. The primary component of hi s William McC . Martin, Paul Volcker, and then appointed Executive Vice Presi- plan is a flat 17 percent tax rate . Alan Greenspan . dent and was elected to the com-pany' s The first session examines the latest Sen. Roth, who was first elected to board of directors in 1974 . research using "generational account- office in 1970, serves on the Senate Fi- He was named President and Chie f ing" to explore how government poli- nance Committee, as well as the Bank- Operating Officer in 1977, and a yea r cies can and will affect how American s ing, Housing and Urban Affairs Commit - later was named President and Chie f save. Larry R. Langdon of Hewlett- tee and the Governmental Affairs Com- Executive Officer . In 1983 he becam e Packard will chair the panel, which fea- mittee. He is best known for the Roth - Chairman of the Executive Committe e tures Dr. Laurence J . Kotlikoff of Boston Kemp initiative, introduced in the late of Hewlett-Packard's board of direc- University and Dr. Peter M . Taylor of 1970s and enacted in 1981 . The mea- tors. the Senate Budget Committee (minority) . sure led to federal income tax cuts in He retired on October 31, 1992 . Session two asks if the method w e 1983, 1984, and 1985, which many Mr. Field will be honored during use to tax U .S. businesses on their inter- economists say spurred economi c lunch earlier in the day . He has pub- national operations is appropriate to the growth and helped eliminate "bracket lished Tax Notes, a weekly trade jour- modern, integrated, and highly competi- creep"—the tendency of taxpayers to nal published by Tax Analysts, sinc e tive global economy . E. Noel Harwerth shift to higher tax brackets solely be- 1970. Prior to that, Mr. Field was an of Citicorp/Citibank, U .S.A., will chair cause of inflation . Attorney-Advisor for the Office of Tax the session, and panelists will includ e Sen. Roth is also known for cham- Legislative Counsel at the Treasury De - Dr. Norman B. Ture of the Institute fo r pioning an extension of Individual Re- partment, and a trial attorney for th e Research on the Economics of Taxation , tirement Accounts, which were cut Tax Division of the Justice Depart- Robert N . Mattson of the International back in the Tax Reform Act of 1986 . ment. He also served in the U .S. Army , Business Machines Corporation, and He helped introduce a bill in 199 2 retiring as a Colonel . William Brack of the office of Senato r which would restore full deductibility Hank Brown (R-Colo .). National Conference of IRAs and expand their availability— a The final panel explores tax provision included in the 1992 tax bill This year's half-day conference fo- neutrality and the treatment of corpo- but vetoed by President Bush . cuses on "Steering Tax Policy by Tax rate investment . John P .Z. Kent of GT E Mr. Young joined Hewlett- Neutrality." By exploring tax neutral- Corporation chairs the session, which Packard's marketing-planning staff i n ity, a term that means a lot of things to will feature Dr. Margo Thorning of the 1958, and subsequently served as a Re- a lot of analysts, the program will spu r American Council for Capital Forma- gional Sales Manager, a member of the efforts toward a common definitio n tion, Dr . Jane G. Gravelle of the Con- corporate finance staff, and Marketing and put long-term economic growth a t gressional Research Service, and Will- Manager of the former Microwave Divi- the fore of the tax policy debate .