Taxes: Who really pays.

According to the Tax Foundation, in calendar year 2008, the top-earning 5% of taxpayers (adjusted gross income—AGI—over $159,619) earned 34.7% of the nation's AGI, but paid 58.7% of federal individual income taxes. The top 1% of tax returns earned 20.0% of AGI and paid 38.0% of all federal individual income taxes.

That means the “next 4%” earned 14.7% of AGI and paid 20.7% of taxes.

The Congressional Budget Office reports the richest 20% of taxpayers shoulder a record 86% of the federal income tax burden, which means the top 20%'s “bottom 15%” must be paying 27% of income taxes. The Census Bureau defines the top 20% of households as those earning over $100,000, while the Internal Revenue Service says the top 1% makes over $380,000. Please see the chart below, which graphically divides up among the top 1%, the next 4%, and the last 15% the income and income tax burden of the top quintile (20%) of American households.


The chart provides us a clearer picture of what’s going on at the top. The top 1% of households we previously identified as rich enough, at $400,000 annually and higher, to live with a progressive tax system, even though some are giving up small business profits they could invest more wisely than the government.

Obama and his people have claimed a second-level group of taxpayers, those earning between $200,000 (individual, $250,000 family) and $400,000, make up only 1% of households (Obama’s “only one out of 50 households will pay higher taxes" equals 2%; take away the top 1%, and you are left with 1%). In fact, the bottom group of Obama's "top 2%" is closer to 4%, since the "next 4%" cut-off income of $160,000 in 2008 today just about reaches Obama's rich people floor of $200,000. This 4% group, at the bottom of the wealthy, will be unhappy to have their taxes raised, and should by now be souring on Obama’s “soak the rich” rhetoric.

The top quintile’s final 15% (not the 18% of the top quintile Obama suggested would escape higher taxes), those between $100,000 and $200,000, is the larger group Obama is trying to buy off with his “more public services at no cost” strategy. It’s crass politics, as we saw earlier, since one simply can’t get enough from upping taxes on the top 5% to close the deficit and do all Obama wants to do.

Obama’s priorities are 1) get re-elected in 2012, 2) raise taxes on both the top 5% and the bottom 95% in 2013, when he will no longer have to run again. No other strategy makes sense for the leader of the big government party, a man thus far unable to cut a budget.

And much of Obama’s increased taxes will have to come from the “next” 15% he tries so hard to woo. After all, the top 20% have 50% of the income, and 85% of the wealth. It’s why they already pay 86% of income taxes.

The top 20% of households includes four times as many workers as the bottom 20%, and nearly six times as many full-time, year-round workers.

The top 20% of households also form the largest quintile in population, containing 78.4 million people. That means 1/4th of America is in the top quintile. And as we learned earlier, they make up 26% of the electorate.

One hopes these “best” are bright enough to realize how directly runaway government spending will hurt them.

Extended note: To arrive at the actual number of people in the top 20% of households, we looked at the middle quintile—the median—of households, with a population of 61,637,000 (23,436,000 households mulitiplied by the average household size of 2.63 =). In that quintile, 68.7% of the households are families with two or more people; the rest of the households are single people. In the top quintile, the ratio of families to single people is significantly higher; 87.4% of the households are families. That means the ratio of families in the top 20% households to families in the median household population is 1.27 to 1. Applying that ratio to the median quintile population of 61,637,000, we find the top quintile’s population is roughly 78,400,000, which works out to 25.5% of the U.S. population.