New data from the IRS show that America’s income tax system remained highly progressive in 2020, with the top one percent of wage earners paying more than 42 percent of all federal income taxes for the year and the top 50 percent paying 97.7 percent of taxes received by the Treasury. The bottom 50 percent paid 2.3 percent of all income taxes.The data, compiled by analysts by the Tax Foundation, found that Americans across the board in 2020 paid lower tax rates than they did before President Trump’s signature tax reforms in the 2017 Tax Cuts and Jobs Act. More than 157 million tax returns were filed for the 2020 year reporting $12.5 trillion in adjusted gross income. The individual income taxes paid based on those returns totaled $1.7 trillion.The income reported on 2020’s returns amounted to an increase of $650 million over 2019’s levels, and the taxes paid on that income rose by $129 billion, or eight percent, over the previous year. The average individual tax rate climbed slightly during the year, to 13.63 percent in 2020 compared to 13.29 percent in 2019.The top one percent of earners, which numbered nearly 1.6 million filers, had adjusted gross incomes of more than $548,000 and paid an average tax rate of 26 percent. The tax rate was eight times the rate faced by the bottom half of taxpayers, who earned less than $42,000 and paid an average tax rate of 3.1 percent. The top one percent paid more than 42 percent of all income taxes paid to the federal government, an amount that is more than everyone in the bottom 90 percent combined.The share of income taxes paid by that same one percent has risen dramatically over the past 20 years, according to the Tax Foundation. In 2001, the top one percent paid 33.2 percent of all income taxes and the burden on the bottom 50 percent fell to just over 2.3 percent from 4.9 percent 20 years earlier.The income tax rate paid by those in the top five percent of all taxpayers during 2020, or those earning at least $220,000, averaged 22.4 percent. The average tax rate for those in the top 25 percent, or those who earned at least $85,853, was 17.1 percent. The report noted that income increased among the top wage earners in 2020 over the previous year and decreased among lower-income earners. The share of adjusted gross income reported by the top one percent increased to 22.2 percent in 2020 from 20.1 percent in 2019; the share reported by the bottom 50 percent fell to 10.2 percent from 14.4 percent during the same period.The report cautioned, however, that the results for the year were skewed by the pandemic-related relief payments and related unemployment benefits paid out during the year. “The income dip for the bottom half of taxpayers combined with the tax credit boost unavailable to higher-income households led to lower average tax rates at the bottom and a greater share of taxes borne by households at the top, compared to a typical year,” the report said.Last year, the Congressional Budget Office reported that federal tax receipts have ballooned since the pandemic began in 2020 and Americans were on track to pay a record $5 trillion in taxes in fiscal 2022 — part of which can be attributed to inflation rates that are running the highest they have been since the early 1980s.The total was the most taxpayers have paid as a percentage of the national gross domestic product since World War Two. Total taxes paid were up 23 percent, or more than $1 trillion, above what was paid during fiscal 2021. The last time federal tax receipts were at this level was in 2000, at the height of the dot-com bubble, when the percentage amounted to 20 percent.
