What the Rich Pay
According to studies the rich do not pay less than the middle class. This is backed up by studies by U.S. Treasury Department, Investor’s Business Daily and the Atlantic Monthly. As can be noted in the table below the groups who earn $500,000 per year or more pay much higher effective tax rates than those in lower incomes. The groups below $200,000 per year all average less than 18% effective tax rates. The groups above $500,000 all average at least 27%.
- Group I.…Earning $20,000 pay 10% or less.
- Group II....Earning $75,000 pay 15% or less.
- Group III...Earning $200,000 pay 18% or less.
- Group IV...Earning $500,000 pay at least 27%.
Of course, the data above shows groups—not individuals. Within those groups there are some people who pay more or less taxes than others. So there are certainly some millionaires who pay little to nothing in taxes and others that pay something closer to their marginal rate. Likewise, in the lower-income segments, some pay less and other pay more.
The above table provides a pretty good idea of what groups, as a whole, pay. From the table, the U.S. tax system looks pretty progressive. So during an election year it is good idea to remember that the rich already pay a lot more in taxes than the middle class. So, when we listen to the political rhetoric we need to stay grounded in the reality of our current tax system.
The Cost of Preparing Your Income Taxes
Chances are, you know how much you pay in taxes. But how much are taxes costing you in time and preparation fees?
According to a Tax Foundation report, using statistics from the Office of Information and Regulatory Affairs and the Bureau of Labor Statistics, tax compliance will cost the U.S. economy $409 billion this year. In all, Americans will spend 8.9 billion hours—more than 222 million work weeks—complying with IRS tax filing requirements for 2016.
The biggest part of the problem? Tax reform, which has taken the U.S. Tax Code from 409,000 words in 1955 to 2.4 million words today—plus an estimated 7.7 million words worth of tax regulations. The tax code is estimated to grow at about 89 words per day.
Sometime after the upcoming Presidential elections, you’ll see a tax simplification movement in Congress, pushed by both sides of the aisle. A cynic would say that this will be a way to shake special interests for more campaign contributions if they want to protect their exemptions, and the cynic might not that past tax simplification movements have added more pages than they’ve subtracted. Pay attention to whether the reform proposals would actually reduce the complexity to the point where you, yourself, would have no trouble filling out your tax returns, and if you see any goal other than that one, consider writing a stern note to your Congressional representatives.
Closing
In closing let me again share with you the wisdom of a quote with significant insight: “The income has made liars out of more Americans than golf.” ---Will Rogers
Let me again express our thanks for your continued trust and loyalty.
Special Report No. 88 – Taxes: Do The Rich Really Pay Less and How Much is Spent Preparing Taxes
Information complied in the report comes from the following sources: The Tax Foundation, Forbes.com, U.S. Treasury, Investor’s Business Daily and the Atlantic Monthly. This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax advisor.