Lots of Taxes but not many Taxpayers

The IRS just released it’s taxpayer statistics for the 2006 tax year.  With all the press dedicated to analyzing the new administration’s tax proposals, I thought it would be good to look at just who is paying taxes these days.

First, the average tax rate paid on all returns was 13.8%, which is slightly higher than the year before.  There were 138.4 million tax returns filed that year of which 67% had some level of income tax reported.  This is line 61 of the 1040, line 28 from the 1040A and line 11 of the 1040EZ form.   I think if more people looked closely at how much tax is assessed for their situation, they would be stunned.

Back to the statistics, the top 1% of taxpayers paid 39.9% of the tax paid that year.  The top 5% of taxpayers paid 60.1% of the total tax.  The top 5% of taxpayers includes those with Adjusted Gross Income of at least $153,542.  That means 95% of the taxpayers only pay 40% of the taxes on returns.

What does this mean?  There is only so much money that can be squeezed from the population of taxpayers.  If one takes into consideration the total Federal, Social Security, Medicare, State, Local, sales and property tax that each person in this country pays, it is truly a staggering number that in some cases could exceed 50% of income.

As I have stated before on this blog, individual consumers must find a way to live within their means.  No person can continue to spend more than they take in.  Eventually, they must repay the debts.  Invariably, in the lives of ordinary taxpayers, we have unforeseen issues occur that require we maintain a “slush fund”.  If no financial cushion is available, the average person would be forced into bankruptcy.  Let’s hope our federal, state and local governments can learn this principle soon as well.