Understanding the Disparity Within the 1%: Income and Tax Rates in the US

In recent years, there has been a lot of talk about "The 1%" in the United States, referring to the wealthiest people in the country. However, this term can be misleading as it lumps together people with vastly different levels of wealth and income. In reality, there is a significant disparity within the top 1%, particularly between those at the upper-upper end and those just below it.

According to data from 2020, the average income for the top 1% in the US was around $825,000 per year. However, this number masks the fact that within the top 1%, there are people earning significantly more. For example, the top 0.1% (the top 1/10 of 1%) had an average income of $3.2 million per year, almost four times higher than the average for the top 1%.

This disparity is important to keep in mind when discussing issues related to wealth and taxation. Those at the upper-upper end of the income spectrum may be paying a vastly different tax rate than those just below them. For example, CNBC recently reported that those earning between $60,000 and $100,000 per year in the US pay an average federal income tax rate of around 12%. Meanwhile, those earning above $75 million per year (the top 0.0001%) pay an average rate of 24%.

This data clearly shows that the wealthiest Americans are not getting a free ride when it comes to taxes. However, there are still questions about what those in the middle-to-upper end of the income spectrum are paying. For example, someone earning a salary of $750,000 per year pays a federal tax rate of around 31%. Others who earn through pass-throughs or capital gains may pay significantly less.

It's important to note that these figures only reflect federal income taxes, and do not include other types of taxes such as payroll taxes, excise taxes, local taxes, social security taxes, medicare taxes, sales taxes, and more. Nevertheless, they provide a useful starting point for understanding the distribution of wealth and taxation in the US.

In 2020, taxpayers in the US filed 157.5 million tax returns, earning nearly $12.5 trillion in adjusted gross income and paying $1.7 trillion in individual federal income taxes. The average income tax rate for all taxpayers was 13.6%. However, the average rate paid by the top 1% was significantly higher at 25.99%. This is more than 8 times higher than the average rate paid by the bottom 50% of taxpayers, who contributed just 2.3% of federal income taxes collected.

It's worth noting that only a small number of Americans earn truly enormous sums of money. Roughly 1 million Americans earn $500,000 or more per year, while only around 250,000 earn $1 million or more. Fewer than 25,000 US households earn $10 million or more. Nevertheless, the fact that some people earn $100 million or more can skew average figures and make it difficult to understand the distribution of wealth and income in the US.

Overall, the data shows that while there is significant wealth inequality in the US, it is not as simple as dividing the population into "the 1%" and everyone else. There are significant disparities even within the top 1%, and different tax rates apply to different income levels. It's important to take these factors into account when discussing issues related to taxation, wealth redistribution, and social inequality.

Sources:

• CNBC. "Here's how much US citizens pay in taxes." Accessed March 2, 2023. https://www.cnbc.com/2020/02/14/heres-how-much-us-citizens-pay-in-taxes.html

• The New York Times. "The Big Flaw in Taxing the Rich." Accessed March 2, 2023. https://www.nytimes.com/2021/10/03/opinion/tax-wealthy-democrats.html