Each year the President’s annual proposed federal budget is sent to Congress from the White House Office of Management and Budget (OMB) for both houses of Congress to consider and for each to write its own appropriations bill. After one house finishes its appropriations bill it sends it to the other house of Congress. Both bills are considered by both houses of Congress, and a final bill is written by both houses and then sent to the President for a signature. When the final appropriations bill is finished and sent to the WH for the President’s signature, the OMB makes final decisions about the agencies’ proposed budgets and in that way the appropriations bill is distributed.
High-Income taxpayers paid the majority of federal Income Taxes. In 2021, the bottom half of taxpayers earned 10.4 percent of total AGI and paid 2.3 percent of all federal individual income taxes. The top 1 percent earned 26.3 percent of total AGI and paid 45.8 percent of all federal income taxes. March 13, 2024. (Adjusted gross income, also known as (AGI), is defined as total income minus deductions, or “adjustments” to income that you are eligible to take.
Taken as a whole, the federal income tax is progressive, meaning that those with higher incomes pay at higher rates. But the system’s progressivity tends to break down at the very uppermost income levels. (I would argue that progressivity tends to break down starting with incomes from $1 million and higher. See my opinion notes at the end of the essay.)
Average effective tax rates, defined here as total income tax as a percentage of AGI, were highest among taxpayers with AGIs between $2 million and $10 million (nearly 28%). The average effective tax rate for taxpayers with AGIs of $10 million or more was lower (25.5%), mainly because they tend to get more of their income from dividends and long-term capital gains, which are taxed at lower rates than wages, salaries and other so-called “ordinary income.”
Corporate tax brings in smaller share of federal revenues
Although the focus this time of year is on individual income taxes, corporate income taxes are also a significant source of federal revenue. This year, the Office of Management and Budget projects that the government will collect $546 billion in corporate taxes, or 11.4% of estimated total receipts. That’s less than half the corporate-tax share of total revenues that prevailed in the 1950s.
Several big corporations, including Amazon, Nike and FedEx, have come under fire in recent years for paying little to no income tax. But comparing corporate and individual income taxes is tricky. For one thing, corporations can report income and taxes differently to the IRS than they do publicly to investors. They can also spread losses in a given year across several years’ worth of taxes – meaning, in effect, that taxes due on this year’s profits can be offset by a previous year’s losses.
Besides average effective tax rates, another way to look at the relative burden on different groups of taxpayers is by examining how much of the total bill they foot.
The IRS collected $1.66 trillion in individual income taxes in 2020 (excluding the $78.6 billion in negative tax liabilities referred to earlier). Close to 54% of that sum came from taxpayers with AGIs between $100,000 and $1 million – a group that accounted for just under a fifth of all returns filed (31.3 million), and about 30% of all taxable returns (31 million).
At the very top of the income ladder, only 0.02% of all returns filed in 2020 showed AGIs of $10 million or more, but those taxpayers collectively paid $210.2 billion in taxes after refundable tax credits, or 12.6% of total individual income tax collections.
| Tax rate | Single | Head of household | Married filing jointly or qualifying widow | Married filing separately |
| Source: IRS | ||||
| 10% | $0 to $11,600 | $0 to $16,550 | $0 to $23,200 | $0 to $11,600 |
| 12% | $11,601 to $47,150 | $16,551 to $63,100 | $23,201 to $94,300 | $11,601 to $47,150 |
| 22% | $47,151 to $100,525 | $63,101 to $100,500 | $94,301 to $201,050 | $47,151 to $100,525 |
| 24% | $100,526 to $191,950 | $100,501 to $191,950 | $201,051 to $383,900 | $100,526 to $191,950 |
| 32% | $191,951 to $243,725 | $191,951 to $243,700 | $383,901 to $487,450 | $191,951 to $243,725 |
| 35% | $243,726 to $609,350 | $243,701 to $609,350 | $487,451 to $731,200 | $243,726 to $365,600 |
| 37% | $609,351 or more | $609,351 or more | $731,201 or more | $365,601 or more |
Here’s how that works for a single person with taxable income of $58,000 per year:
$58,000 to $44,725 taxed at 22%
$44,725 to $11,000 taxed at 12%
$11,000 to $0 taxed at 10%
The highest tax bracket is 37%. In 2023, for single filers, it applies to incomes over $578,126, and for married couples filing jointly, it applies to incomes over $693,751. Income exceeding these thresholds is taxed at a 37% rate.
The rules governing what constitutes business or individual income, and how it should be taxed, are only part of what makes the U.S. tax code as complex as it is. One rough measure of that complexity: The printed version of the 2021 edition of the Internal Revenue Code runs a total of 4,074 pages, excluding front matter. More than half of those pages (2,448) are devoted to the income tax.
The following is my opinion about the Federal Tax Code as it is currently composed and the questions I have about it. These are also my criticisms of the tax code and how I believe it could be improved to make it a truly progressive tax code.
Income of $578,126 for a single filer and $693,751 for married couples filing jointly, and up, are taxed at the maximum tax bracket of 37%. That is the top tax bracket in the Federal tax code. Income above these sums is taxed 37%.
The bottom half of taxpayers had an income of 10.4% of total AGI and paid 2.3 % of all federal individual income taxes. Taxpayers with AGIs between $100,000 and $1 million made up about 30% of all taxable returns and paid 54% of the income taxes collected. These taxpayers make up about 30% of taxpayers but pay about 54% of the tax bill. Adjustments should be made so that perhaps this group has a tax burden of closer to 30%, the approximate percentage of taxpayers, instead of the 54% they pay now. Taxpayers with income between $1 million and $10 million paid approximately 31% of total individual income tax collection. Taxpayers with an income of $10 million or more made up 0.02% of taxpayers and in the 37% tax bracket paid 12.6% of total individual income tax collections. The discrepancies that exist from one group to the others begs the question of whether the tax burden is equally and fairly shared among all income groups and all tax brackets. A fairer tax code would have more tax brackets for the higher incomes. The total income tax collected on incomes above $10 million should be higher than 12.6%. It should be higher than the other brackets. The tax burden on income from $1 million to $10 million should remain higher than lower tax bracket groups but perhaps slightly lower than they currently are. It’s not rocket science. It’s a matter of fairness with higher incomes paying progressively higher taxes. And with all income, especially at higher levels, being taxed fairly.
Other considerations and changes that should be made are that capital gains and dividends should be taxed as income in corresponding tax brackets; in other words, capital gains and dividends should be taxed like “ordinary” income.
Corporations should be taxed at consistent rates and should not be allowed to pay little or no taxes. After all, corporations are people too. So, like the rest of the people who pay their taxes, corporations should also pay their fair share of taxes. Corporate income taxes should be uniform and consistent. Back taxes or unpaid taxes should be recovered.
I would welcome comments, criticism, and corrections, and further discussion to develop a more comprehensive picture of the tax code and how it can be improved. So, please, feel free to chime in.
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