Tax Burden Falls on the Wealthy Tue Apr 9, 2:08 AM ET By CURT ANDERSON, AP Tax Writer
WASHINGTON (AP) - As a group, Americans whose incomes are in the top 5 percent are footing an increasing share of the national income tax burden. People in the bottom half, on the other hand, are paying only a fraction of the total take.
Two-income households are increasing, which puts more families in the top slice of taxpayers. Millions of small businesses and partnerships are up there, too, paying on graduated personal income tax scales instead of the flat corporate rates. Many other incomes were boosted by the 1990s stock market boom.
President Bush's big tax cut will prevent the wealthy from paying an even greater share in coming years. Some crucial provisions, however, such as the gradual doubling of the child tax credit, will reduce or eliminate income taxes for many middle-income people, while the rich won't qualify.
"This trend is not going to reverse," said Scott Hodge, executive director of the Tax Foundation, a nonpartisan tax education and research group. "This will be the demographic for the 21st-century taxpayer."
The income tax deadline for most of the country is midnight April 15, next Monday.
For 1999, the most recent year for which complete Internal Revenue Service (news - web sites) statistics were available, 6.3 million taxpayers whose incomes were in the top 5 percent paid more than 55 percent of all income taxes. They had adjusted gross incomes above $120,846 a year, meaning spouses could earn a bit over $60,000 each and be considered among the nation's richest.
"It's very easy to move into the top echelon of taxpayers," Hodge said.
The wealthiest 1 percent — those earning $293,415 and up — paid more than a third of the taxes, while their share of the nation's taxable income was 19 percent. They pay income taxes at the top rate, now 38.6 percent, compared with a maximum rate of 15 percent for most lower-earning taxpayers.
Taxpayers in the bottom half paid only 4 percent of income taxes in 1999, according to the IRS. These 63 million taxpayers earned, on average, less than $26,415 a year.
Going back to 1989, the top 5 percent income group paid about 44 percent of income taxes, the bottom almost 6 percent. Then, the top tax rate paid by high earners was 31 percent.
Looking ahead, the 10-year, $1.35 trillion tax cut enacted last year reduces income taxes in three steps, with the final step coming in 2006. In that year, according to the congressional Joint Committee on Taxation, taxpayers earning over $100,000 a year will pay almost 59 percent of all income taxes.
Those with annual incomes of less than $30,000 a year will pay about 4.4 percent in 2006, roughly the same as they do today.
In Congress, this disparity in the tax burden causes perennial political trouble for Republican tax-cutters, because any across-the-board reduction meets with Democratic criticism that it would benefit mainly the wealthy while siphoning away money from government programs.
For that reason, many tax breaks contain income cutoff points that leave out the top income earners.
A prime example is the child tax credit, which is $600 for tax returns due April 15 and gradually will rise to $1,000. This year, that credit begins to phase out for married couples filing jointly who earn more than $110,000 a year.
The IRS says the rising child credit, which is $100 higher than last year, is a major factor in the 12 percent increase in average tax refunds this year. Many lower-earning taxpayers who claim the credit get refunds even if it effectively eliminates their tax liability.
Another program for lower-income Americans is the earned income tax credit, intended to offset the burden of Social Security payroll taxes. In 1999, about 13 million taxpayers claimed about $21 billion in credits, which also can trigger a refund for those without tax liability.
At the higher end of the income spectrum, the IRS now receives more than 24 million individual income tax returns from certain kinds of corporations and partnerships that don't pay corporate income taxes. Those frequently pay at the highest personal tax rate.
Perhaps the biggest reason the rich are paying a higher share is that they continue to get richer, said Joel Slemrod, economics professor at the University of Michigan. Between 1980 and 1999, the share of taxable U.S. income earned by the top 5 percent rose from 21 percent to 34 percent.
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