This short presentation observes the average tax rate for different income group tiers. It relies on the US IRS data.

1. Income vs Tax Rates using
IRS Data
Gaetan Lion
October 4, 2011
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2. Let’s Tax the Rich
• This has become a favorite mantra in the current
political climate.
• Even the Rich (one anyway) want to tax the Rich
more (Warren Buffet wanting to be taxed at a
higher rate than his secretary).
• It is true the Rich benefit from two major
advantages: 1) their investment income is taxed
at lower capital gains rate; 2) they exploit tax
deductions the rest of us can’t (accelerated
depreciation on real estate, etc…).
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3. Perceptions…
• The Rich are taxed at a lower tax rate than the
middle class (their secretaries, etc…). This
would not be surprising given lower capital gains
tax rates vs ordinary income tax rates.
• The Rich do not pay their fair share.
Now, let’s examine the actual data (IRS) to
confirm whether those perceptions are based in
reality…
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4. Average Tax Rates
Source: IRS
As shown, the Rich tax rate is actually far higher than the one for the
rest of us (bottom 90%). Average tax rate is simply: taxes paid
divided by income. This is the most accurate representation of 4
taxation.

5. Tax Rate: Top 1% vs Bottom 90%
Source: IRS
The multiple of the tax rate on the top 1% vs the bottom 90% has ranged
from 2.5 to 3.5 times. It is currently (as of 2008) near the very top of that
range. 5

6. Income Tax Share by Income Percentile
Source: IRS
While the top 5% contributed about the same share of taxes as the bottom
90% in the late 80s (both around 45%); now the top 5% contribute twice as
much as the bottom 90% (60% vs 30%). Similarly, over the same period the
share of the top 1% was far lower than for the bottom 90% in the early 80s;
now it is far higher. 6

7. Perceptions revisited
• The Rich are paid at a lower tax rate than
the middle class (their secretaries, etc…).
That’s wrong.
• The Rich do not pay their fair share.
That’s wrong too.
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8. But the Rich make a lot more money now
Source: IRS
… That’s true as their share of Income has risen relative to the bottom
90%. This trend results from several causal factors: globalization,
technology, deregulation, weakening of labor unions, manufacturing off
shoring, etc… Thus, this is not just a tax related phenomenon. 8

9. However Taxes are still very Progressive
The Rich all
experience a high
multiple of Share of
Taxes paid divided by
Share of Income.
That multiple has
been volatile and
sensitive to Bubbles
and crises in real
estate and stocks.
But, the long term
trend is flat.
Source: IRS Meanwhile, the trend
for the bottom 90% is
steadily downward
from 0.70 in 1986 to
0.55 in 2008.
The combination of the above trends confirm that taxation has remained
very progressive. In other words, the Rich share of taxes has remained
far higher than their share of income. Meanwhile, for the not so rich their
share of taxes has steadily declined relative to their share of income. 9

10. The Real Issues…
• It is not Tax the Rich. It is more like tax
everybody including the Rich.
• The US is currently running a Budget
Deficit equal to 9% of GDP. With
upcoming fiscal pressures of rising Social
entitlement costs (Social Security &
Medicare) raising taxes for everyone (not
just the rich) appears inevitable.
• Reducing spending is another imperative.
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