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Today, the rich pay more; the poor pay less. Bush tax cuts notwithstanding, those with high incomes continue to pay at much higher tax rates than those with lower incomes. They also pay much more of the total tax bill, a reality that seems to have escaped both Hillary Clinton and Barack Obama.
Only 953,000 households -- about 1% of the total who paid taxes -- paid at the top 35% tax rate in 2005. They paid $315.4 billion in taxes on their $1.1 trillion in income.
The most common marginal tax rate is 15%. That's the rate paid by 54.4 million households. This means the typical taxpayer pays at less than half the tax rate of the top earners.
The second most common marginal tax rate is 10%. About 25.5 million households pay at that rate. This group pays taxes at one-third the rate paid by the highest-income taxpayers. So of the two-thirds of all households that pay anything in income taxes, about three-quarters pay at 15% or less.
An additional 22 million, 3.7 million and 1.5 million households pay income taxes at marginal rates of 25%, 28% and 33%, respectively. In 2000, this top 25% of all taxpaying filers paid a whopping 83.6% of all income taxes. By 2005 they paid 85.6% of all taxes. So despite tax cuts for the well-off, the share of taxes paid by them has risen.
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What does this all mean?
Simple. When political talk turns to tax "fairness," none of the candidates mentions where a high income begins. So I thought you might want to know. You were in the top 25% of taxpayers in 2005 if your taxable income exceeded $61,055.
Millions of Americans have no idea what fat cats they are.
Questions about personal finance and investments may be e-mailed to scott@scottburns.com. Questions of general interest may be answered in future columns. More columns by Scott Burns can be found here and here.
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Should you worry about the estate tax?If you're 30 with a $500,000 estate, you may need to plan for the estate tax. MSN Money tax expert Jeff Schnepper explains why.
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