How much do you need to earn to be in the top 1%?
Now that we’re in tax season we thought it would be appropriate to take a look at income and taxes in the United States. How are they distributed? Is it fair? What does it take to be in the top 1%?
In part two of today's post, you can take our Tax Tidbits Quiz to see how much you know about taxes. Scroll down a little further to take the quiz.
But first, let's look at how income and taxes are distributed in the U.S.
The rise of presidential candidates Donald Trump and Bernie Sanders is partly driven by unhappiness with stagnant middle-class incomes and the dispersion of wealth in our country. Recently released 2013 tax return data from the IRS sheds some light on the breakdown of income and taxes paid at various income categories.
Often times we hear people talk about “the top 1%” and now we have some hard data, which shows what it takes to be in that category. In addition, with our progressive tax system, the more you earn, the more you pay in taxes (unless you find various tax breaks).
Kiplinger magazine neatly summarized the data from the IRS in the following chart.
Source: Kiplinger
As the chart shows, the top 1% took home about 19% of all income in 2013. This percentage of total income taken home by the top 1% has fluctuated over the years. It peaked in the late 1920s at about 24% and dipped to below 10% by the 1970s, according to Emmanuel Saez of UC Berkeley. From a taxes paid standpoint, the top 1% paid 37.8% of all taxes in 2013.
To be in the top 10% of income earners, you needed an adjusted gross income of $127,694 in 2013. These folks paid almost 70% of all taxes in 2013.
Data like this can generate strong feelings among people on both sides of the political spectrum. We wanted to share some actual data so the next time you hear somebody talking about this, you’ll have data on your side.
While few people enjoy paying taxes, it beats the alternative—not having enough income to owe taxes. Let us know if we can help you in any way.
Sources: http://www.kiplinger.com/article/taxes/T054-C000-S001-your-rank-as-a-taxpayer.html
http://fortune.com/2014/10/31/inequality-wealth-income-us/https://eml.berkeley.edu/~saez/saez-UStopincomes-2013.pdf
http://www.forbes.com/2009/03/19/taxes-bailouts-class-opinions-columnists-warfare.html
https://en.wikipedia.org/wiki/Income_tax_in_the_United_States#History_of_top_rates
https://wallethub.com/blog/tax-day-statistics/11835/http://theweek.com/articles/538623/10-tax-facts-irs-doesnt-want-know
http://www.pewresearch.org/fact-tank/2015/04/10/5-facts-on-how-americans-view-taxes/
http://taxfoundation.org/article/tax-freedom-day-2015-april-24th
About Bill
Bill Keen is a CHARTERED RETIREMENT PLANNING COUNSELOR℠ and independent financial advisor with more than 25 years of industry experience. As the founder and CEO of Keen Wealth Advisors, a registered investment advisory firm, he specializes in providing personalized retirement planning designed to help people thrive before and during their retirement years. With a passion for educating others, Bill regularly blogs about retirement planning, hosts the podcast Keen on Retirement, and has contributed to U.S. News and World Report, Reuters, Wall Street Journal’s Market Watch, Yahoo Finance, and other publications. Based in Overland Park, Kansas, Bill and his team work with clients throughout the greater Kansas City area and across the nation. To learn more, connect with him on LinkedIn or visit www.keenwealthadvisors.com.
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