No, The Rich Do Not Pay 'All The Taxes'

CNBC ran a story yesterday with the headline “The rich do not pay the most taxes, they pay ALL the taxes.”

The story has thousands of Facebook shares. And its premise is completely false.

The article goes on to present data regarding the federal personal income tax, which is indeed paid almost entirely by people with high incomes. People with low incomes pay negative federal personal income taxes (that is, the government sends them checks) because of the earned income tax credit.

But “taxes” are not the same thing as “federal personal income taxes.” The federal personal income tax only made up 28% of all U.S. government tax collections in 2012. Federal, state and local governments collected $US4 trillion in taxes last year; just $US1.1 trillion of that was federal personal income tax.

And people with low incomes who don’t pay federal personal income tax do pay lots of those other taxes: payroll tax, state income tax, sales tax, property tax, excise taxes, and more. They pay other taxes indirectly: Workers bear the burden of employer-paid payroll taxes and part of the burden of corporate income taxes.

Here’s a chart I made earlier this year showing the distribution of the tax burden when you add all the taxes together. Earners in the top 1% pay about 43% of their incomes in tax. People in the middle quintile pay 25%. The poorest fifth pays 13%.

Rich people do pay a lot more taxes than poor people, both in absolute terms and as a percentage of income. But the rich are not paying all the taxes. And looking just at the federal personal income tax and trying to draw conclusions about who pays “taxes” will lead you to wrong answers.

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