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Income Tax Rates 2009 Irs

The top 1% of tax filers earned about 22.8% of the nation’s income in 2007 and paid 40.4% of all federal Income Taxes – more than the bottom 95% of tax filers combined, a new report has shown.

According to a Tax Foundation analysis of just-released Internal Revenue Service (IRS) data, both income and income tax shares for the top 1% of tax returns – those with adjusted gross income (AGI) of more than USD410,096 – hit all-time highs in 2007, the most recent year for which such data is available.

However, given the economic downturn in 2008, Tax Foundation Senior Economist Gerald Prante noted that the record-setting trend for income and income tax shares is likely to end with 2007.

“This pattern at the top of the income spectrum is the same during almost every recession and recovery,” observed Prante. “Unlike middle-income wage-earners whose incomes and tax liabilities are fairly steady, high-income people have incomes and tax liabilities that fluctuate wildly with the economy.”

This is a trend that also applies to government income, Prante said.

“The sharp rise in federal government Tax Revenue from 2003 to 2007 is likely to be followed by a substantial dip in 2008, 2009 and perhaps 2010 as the economy struggles through the worst recession since the early 1980s,” he posited.

The Tax Foundation also analyzed data on the top 0.1% of tax returns (the top 10% of the top 1%), which amounts to only 141,000 tax returns but accounts for nearly 12% of the adjusted gross income earned and approximately 20% of the nation’s federal individual Income Taxes.

The average income for a Tax Return in this top 0.1% is USD7.5m, while the average amount of income tax paid is USD1.6m, indicating an average effective individual income tax rate of 21.5%.

This very top income group has a lower average effective tax rate than the rest of the top 1% of returns. This is because these extremely high-income returns are more likely to have income from capital gains and dividends, which are typically taxed at lower rates. However, the Foundation cautions that in the case of capital gains and dividends, in most cases the income has already been taxed once by the corporate income tax, which is not included in the analysis.

The figures show that between 2000 and 2007, pre-Tax Income for the top 1% of tax returns grew by a nominal 50%, while pre-Tax Income for the bottom 50% increased by a nominal 29%. The net result of this has been a sharp rise in federal government Tax Revenue from 2003 to 2007 compared to previous years.

Other IRS preliminary data shows that in 2007 around 47 million tax returns were filed with either positive or negative AGI that used exemptions, deductions and tax credits to completely wipe out their federal income tax liability. Indeed, some filers received more back from the IRS than was withheld from their income during 2007, the Foundation noted. This is a result of refundable tax credits like the Earned Income Tax Credit.

“EITC is Congress’s way of using the Tax Code to simply administer a transfer system, while doing it in a way that some economists prefer, via a negative income tax,” the Foundation said.

Overall, the average tax rate for returns with a positive liability went from 12.60% to 12.68% from 2006 to 2007, excluding refundable tax credits. But despite Tax Cuts enacted in 2001 and 2003, the Foundation noted that the tax system remains “highly progressive.”

The average tax rate in 2007 ranges from around 3% of income for the bottom half of tax returns to 22.45% for the top 1%. Since 2001, the average tax rate has fallen from 4.09% to 2.99% for the bottom 50%, and it has fallen from 28.20% to 21.46% for the top 0.1% and 27.5% to 22.45% for the top 1%. The Foundation attributed the decrease for the very top on the reduction in capital gains and dividends taxes, as well as the drop in ordinary tax rates.

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Article Source: ArticlesBase.com – Top 1% Paid Record US Taxes Last Year

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