Income Tax Inequality: Do the Rich Pay Too Much?

Recently, concerns about economic inequality have risen to the forefront, as minimum-wage protests against McDonald's (NYSE: MCD  ) , Walgreen (NYSE: WAG  ) , and other employers have highlighted the tension between the rich and the poor. But when it comes to income taxes, one report suggests that the highest-income Americans bear more than the entire income tax burden for the nation.

In the following video, Dan Caplinger, The Motley Fool's director of investment planning, looks at the Congressional Budget Office report, which says that the the 40% of Americans with the highest income paid 106% of the total income tax burden in the most recent year for which data were available. Dan explains how that's even mathematically possible, as the lowest 40% of income-earners actually get net money back on their income taxes because of the earned income tax credit. When you look at other taxes like payroll withholding from paychecks, even the poor end up paying something. But Dan notes that the top 40% still pay 86% of the tax, further observing that those disparities make sense given similar disparities in the total amount of income each group earns.

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Read/Post Comments (12) | Recommend This Article (4)

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  • Report this Comment On December 15, 2013, at 2:25 PM, peckbill wrote:

    The rick cry a lot, but they pay very little taxes; I would classify them as crooks.

  • Report this Comment On December 15, 2013, at 2:27 PM, peckbill wrote:

    The rich cry a lot, but they pay very little taxes. I would classify them as crooks and they are very greedy

  • Report this Comment On December 15, 2013, at 2:32 PM, TreeWalker wrote:

    What an odd (biased) way to look at the numbers. The earned income tax credit is an expenditure by the government. Why consider it different than buying an aircraft carrier? Besides, if 40% get the EI tax credit and 40% pay 108% why are the middle 30% not considered to have paid income tax? Why not say the top 60% of income earners pay 120% of income taxes (if that is what the number is)?

  • Report this Comment On December 15, 2013, at 4:57 PM, rightislight wrote:

    @ Peckbill. I'm so tired of the argument you make…that the "rich cry a lot". I think those that are in the top 40% are simply making a point that they are already covering the tax burden. The wouldn't be making this statement if not for those that say the "rich" (if that's what you call the top 40%) aren't "paying their fair share". It's pretty clear, based on this article and numerous others I've read, that the top wage earners are in fact paying their fair share.

    Look you can't whine and complain that the rich aren't paying enough in tax and then argue the top 40% of earners are "crying" when they simply are just point out the facts.

    @ TreeWalker… and just where does the "government" get the money for that "expenditure". Yes… tax dollars from the top 40%. The point made is some folks in the bottom 40% are actually getting money back they didn't earn… kind of like a bonus. That's a redistribution of wealth - plain and simple. It's nothing like buying a physical asset.

  • Report this Comment On December 15, 2013, at 5:35 PM, Howdie wrote:

    The way the tax laws are written, the really rich pay a LOWER effective rate than the middle class. That is what is not fair.

    I don't believe in regressive taxes but when someone who makes hundreds of millions a year through hedge deals and capital gains pays a lower tax rate than a family makes $100-200K (middle class by today's standards), that just plain ain't fair. The effective rate on the uber rich should be at least as much as on the middle class.

  • Report this Comment On December 15, 2013, at 5:52 PM, Brian1 wrote:

    The wealthy are paying far too little. We see this in their new "affluenza" claims where the rich say their kids aren't responsible for crimes like murder and rape because they are too rich. This just happened in the most conservative county in Texas, and endorsed by a Republican judge in that county.

    The rich were supposed to creat jobs with their tax cuts, instead they are creating murderous monsters.

    The garbage conservatives of the far right need to understand we are a capitalist democracy. When the wealthy hold themselves above the law, which they are now doing, then it becomes necessary for the majority to tax them into compliance.

  • Report this Comment On December 15, 2013, at 7:08 PM, Jazzenjohn1 wrote:

    The rich are massively undertaxed. Whenever the issue of the taxes the rich pay come up, it only ever talks about the federal income tax, Why? because that is the only progressive tax there is. Every other tax dis-proportionally falls on the poor. I'm all for a flat tax, as long as it includes every and all taxes and fees I pay, federal, state, and local, otherwise it is yet another scam to screw the bottom 90% in favor of the very rich.

  • Report this Comment On December 15, 2013, at 10:55 PM, beaslekd wrote:

    Those supporting a pure "Flat Tax" cleary WANT to harm the poor or know nothing about taxes and income. A pure "Flat Tax" is the LEAST progressive tax and its impact falls disproportionately on the poorest.

    The tax system cannot be "fair" becasue there is no definition for that word. To prove it, what should be the TOTAL (federal, state, city, school, etc.) tax rate for someone making $1,000,000 a year and what should be the TOTAL tax rate for someone making $25,000 a year?

    What is the money used for that an individual receives a DIVIDEND?

  • Report this Comment On December 16, 2013, at 11:56 AM, AaronA wrote:

    OK. Let's be fair then. 15% flat tax for EVERYONE.

    Stocks and bonds are part of what makes our economy work for everyone. When I invest I am taking a risk. If I make money, people want me to pay taxes on it. If I lose money, no one is patting me on the back for supporting our economy.

  • Report this Comment On December 16, 2013, at 12:54 PM, SkepikI wrote:

    The earned income credit was the worst idea ever implemented in Congress. Everyone ought to pay SOMETHING on income tax, even if its only a buck. Getting back more than you paid in has led to serious indifference to the crooked, corrupt and crony government activities we tolerate today.

    I've never understood how it could be that the "poor" and the people who profess to care about their lot can tolerate the waste, fraud, theft, corruption and crony hiring that burns dollars taken in by the Feds (and the states for that matter).

    The only thing I can figure is that some 40 or 45% are so addicted to "uncle sugar" and so impoverished in the ability to care (because someone ELSE is paying) that its yawn time.

  • Report this Comment On December 17, 2013, at 10:24 AM, Cate wrote:

    I have owned some real estate in a foreign country for over 40 years and if I choose to sell it I will have to either 1. Pay over 40% of the selling price to the IRS if I want to live in the USA, or 2. live overseas and pay only 10% of the profit to that country---which would you do?

  • Report this Comment On December 17, 2013, at 10:28 AM, Mathman6577 wrote:

    I think it's time to stop the class warfare. It serves no useful purpose. If you don't like your lot in life do something about it and stop whining about everyone else.

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Dan Caplinger

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

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