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Scott Burns / Syndicated columnist
Higher income does lead to shouldering more tax

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Q.L., Dallas

A: The wealthy probably can afford to pay more taxes. But higher-income households pay the bulk of all federal income taxes.

In 2001, the last year for which this analysis from the Internal Revenue Service is available, the 1.3 million returns representing the top 1 percent of all taxpayers collected 17.5 percent of all income and paid 33.9 percent of all income taxes. To be in the top 1 percent, you needed an adjusted gross income of at least $292,913.

In addition, their share of total taxes paid had steadily risen from 1986. It was 25.7 percent then. So the well-off are paying more of the taxes collected, even though their average tax rate declined from 33.1 percent to 27.5 percent.

Households in the top 25 percent had adjusted gross incomes of at least $56,085. They paid taxes at an average rate of 18.08 percent. They earned 65.2 percent of the income and paid an impressive 82.9 percent of all income taxes. The average tax rate for the top 25 percent declined slightly from the 1986 average of 18.72 percent.

I'll bet my next paycheck that $56,085 isn't the income most people have in mind when they imagine the fat cats at the top of the income pyramid. But there it is. Most of the glitzy life so visible in advertising is priced well beyond the purchasing power of that threshold earner or family.

The same analysis shows something you would hope for: The average tax rate paid declines as income declines. The top 1 percent paid at an average rate of 27.5 percent. The top 10 percent paid at an average rate of 21.4 percent. The top 25 percent paid at an average rate of 18.1 percent.

The bottom 50 percent, meanwhile, paid at an average tax rate of 4.1 percent, down from 5.6 percent in 1986. If your adjusted gross income was $28,528 or less, you were in the bottom 50 percent. The bottom half also paid only 3.97 percent of all income taxes paid.
 
The only true remaining "loophole" for very high-income people is that they can often control how their income is received. They may, for instance, elect to collect more of it as dividends and capital gains. These are taxed at only 15 percent. The top one-tenth of 1 percent — those with incomes of at least $1,324,487 — paid at an average tax rate of 28.2 percent in 2001.

My bet is that the 2003 figures, when released, will show only a modest decline in average tax rate for this group.

Questions about personal finance and investments may be sent to Scott Burns at The Dallas Morning News, P.O. Box 655237, Dallas, TX 75265; by fax at 214-977-8776; or by e-mail at scott@scottburns.com. Questions of general interest will be answered in future columns.