That sentiment has been expressed not only by many politicians but even by the rich themselves. Despite the evidence, the idea that rich people pay fewer taxes than the average American taxpayer still lives on. In fact, some millionaires have renewed their efforts to get world governments to tax them more. But what does data from IRS say about the rich and how much they pay in taxes, specifically in the U.S.?
Every year, the IRS produces data on who pays federal tax income and by how much. According to this data, contrary to popular opinion, the American tax system is progressive with the rich paying more in federal income taxes than the rest of the population.
The IRS’ recent update shows that this is still true now, as it was in past years. An analysis from the Tax Foundation shows that in 2020, much in previous years, the rich still paid most of the federal income taxes and also effectively faced higher tax rates than low-income individuals.
Federal income taxes in 2020
The Federal income tax system is generally progressive. Tax rates do go up as income grows, despite claims that rich Americans pay lower effective rates than the average taxpayer. In fact, in 2020, the richest 1 percent of Americans paid 26 percent of their income in federal income taxes while for the bottom 50 percent, the proportion was only 3.1 percent.
Additionally, the rich not only paid the majority of federal income taxes but also paid a disproportionately higher share of their income in federal income taxes. For example, while the bottom 50 percent of taxpayers earned a little over 10 percent of all income, they only paid 2.3 percent of all taxes. But the top 1 percent, however, earned 22.2 percent of all income and paid 42.3 percent of all federal income taxes. In fact, over 97 percent of all federal income taxes were paid by half of all taxpayers.
And despite popular opinion, the Trump Tax Cuts and Jobs Act actually cut taxes for everyone across the board and was not a “handout to the rich” as some claimed.
Fair is certainly subjective. But the numbers are clear; the federal income tax system is progressive. The rich pay a disproportionately large share of federal income taxes and they face significantly higher tax rates than lower-income individuals.