Tax Time

Dear Andrew,

First stop, www.taxfoundation.org/files/ff104.pdf, this link should open a .pdf file. You'll love it. The conclusion is that the top one percent of 'tax returns' pay 39 percent of "all" income tax.

That document was prepared using an IRS bulletin which can also be downloaded at: IRS Bulletin Article, 2005.

This bulletin very well supports the Tax Foundation conclusion despite some very small differences in the numbers.

So why don't I stop with the Tax Foundation conclusions which are based on the bulletin?

It's a bulletin, not a report.

If I'm watching some Cable TV movie, sometimes a weather bulletin flashes across the bottom of the screen. That bulletin could say tornado warning for all of Georgia.

The next day, should I tell people, "Tornadoes hit all of Georgia yesterday?"

The IRS bulletin has many "mistakes.'

Here are a couple.

Over 43 million tax returns with income, (AGI), were included in the bulletin. But, these returns paid no taxes. The bulletin does not adjust for this. That's about a 30 percent error in the number of returns with taxable income. Where in the 100% of all returns do those 'tax free' returns fit and how do they skew results?

[The tax free returns are in the bottom quintile for the purpose of reporting. In other words, 43 million returns are counted that pay no tax as being among the "other" 99 percent of of 'taxpayers.'

Now, it's very important to look at how the IRS defines the top one percent of "taxpayers" in the bulletin. There are no footnotes containing that information.

That leaves sorting through raw data. Not much fun.

But, there is an IRS Data Release called, The 400 Individual Income Tax Returns Reporting the Highest Adjusted Gross Incomes Each Year, 1992-2000. [Actually, there are more recent studies. I'll get to those next.]

Those 400 tax returns [tax forms not taxpayers] reported taxable income in 2000 of over $60 billion dollars, an average of $150 million each. About 1.32% of all taxable income.

What was the tax burden for the "top one percent of income?" Actual.

$15,507,223,000. Rounded to the nearest $1,000.

That would be 1.58 percent of all "income taxes" as defined by the IRS, the definition as used in all IRS reporting , as used on tax forms.

Since that "statistical study," [Yes, a statistical study prepared by specific authors, "Prepared under the direction of Michael Parisi and Michael Strudler, economists in the Individual Statistics Branch."] the definition of "income tax" has been changed to exclude certain taxes and certain credits.

So direct comparison of the study from 2003 and bulletins issued after the definitional changes are not possible.

If the Tax Foundation were correct in saying that 1 percent of all taxpayers pay 39 percent of all incometaxes, then why doesn't this group pay 3.9 percent or more of all taxes since they get 1.32 percent of all income?