How much do you need to earn to be in the top 1%?

Usa Tax Day, April 15,Now that we’re in tax season we thought it would be appropriate to take a look at income and taxes in the United States. How are they distributed? Is it fair? What does it take to be in the top 1%?

In part two of today’s post, you can take our Tax Tidbits Quiz to see how much you know about taxes. Scroll down a little further to take the quiz.

But first, let’s look at how income and taxes are distributed in the U.S.

The rise of presidential candidates Donald Trump and Bernie Sanders is partly driven by unhappiness with stagnant middle-class incomes and the dispersion of wealth in our country. Recently released 2013 tax return data from the IRS sheds some light on the breakdown of income and taxes paid at various income categories.

Often times we hear people talk about “the top 1%” and now we have some hard data, which shows what it takes to be in that category. In addition, with our progressive tax system, the more you earn, the more you pay in taxes (unless you find various tax breaks).

Kiplinger magazine neatly summarized the data from the IRS in the following chart.

Screen Shot 2016-03-12 at 9.57.42 AM

Source: Kiplinger

As the chart shows, the top 1% took home about 19% of all income in 2013. This percentage of total income taken home by the top 1% has fluctuated over the years. It peaked in the late 1920s at about 24% and dipped to below 10% by the 1970s, according to Emmanuel Saez of UC Berkeley. From a taxes paid standpoint, the top 1% paid 37.8% of all taxes in 2013.

To be in the top 10% of income earners, you needed an adjusted gross income of $127,694 in 2013. These folks paid almost 70% of all taxes in 2013.

Data like this can generate strong feelings among people on both sides of the political spectrum. We wanted to share some actual data so the next time you hear somebody talking about this, you’ll have data on your side.

Take Our Fun Tax Tidbits Quiz

How much do you know about taxes? Let’s find out…

1. In 1935, the highest tax rate was 79% for income above $5 million (over $80 million in today’s dollars). Only one person paid taxes at that rate. Who was that?
2. What was the highest marginal tax bracket we've ever had in the United States?
3. Paying federal taxes is a relatively recent thing. Back in 1935, what percentage of Americans filed a tax return.
4. The U.S. tax code contains approximately how many words?
5. In 2014, the IRS audited what percentage of individual tax returns?

How did you do? Here are a couple more interesting things about taxes.

  1. In a recent PEW Research Center survey, 40% of Americans said they pay more than their fair share of taxes when they consider what they get from the federal government. The majority, 53%, said they pay about the right amount. Interestingly, 4% said they pay less than their fair share.
  2. Tax Freedom Day® is the day when the nation as a whole has earned enough money to pay off its total tax bill for the year. In 2015, Tax Freedom Day fell on April 24. So on average, everything Americans earned up until April 24 went to pay their taxes for the year.

While few people enjoy paying taxes, it beats the alternative—not having enough income to owe taxes.

Let us know if we can help you in any way.

About Bill Keen

Bill Keen is the founder and CEO of Keen Wealth Advisors, an independent Registered Investment Adviser serving affluent clients preparing for retirement. Bill brings over 23 years of financial services experience and holds the CHARTERED RETIREMENT PLANNING COUNSELOR designation. Bill created Keen Wealth Advisors to build one of the country’s most personal and trusted wealth and retirement advisory firms. He is passionate about serving his clients as a trusted financial coach. To learn more about how we may be able to help you, please contact us at (913) 624-1841.

Sources:

http://www.kiplinger.com/article/taxes/T054-C000-S001-your-rank-as-a-taxpayer.html

http://fortune.com/2014/10/31/inequality-wealth-income-us/

https://eml.berkeley.edu/~saez/saez-UStopincomes-2013.pdf

http://www.forbes.com/2009/03/19/taxes-bailouts-class-opinions-columnists-warfare.html

https://en.wikipedia.org/wiki/Income_tax_in_the_United_States#History_of_top_rates

https://wallethub.com/blog/tax-day-statistics/11835/

http://theweek.com/articles/538623/10-tax-facts-irs-doesnt-want-know

http://www.pewresearch.org/fact-tank/2015/04/10/5-facts-on-how-americans-view-taxes/

http://taxfoundation.org/article/tax-freedom-day-2015-april-24th

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