Recent research indicates that a majority of Americans feel they are overpaying in federal income taxes, with a significant portion mistakenly believing that middle-income households bear the greatest tax burden.
Surprisingly, only around 18% of individuals accurately identified high-income Americans as the group facing the highest federal tax burden, as per a poll conducted in January by AP-NORC.
As the deadline for filing 2023 tax returns approaches, taxes are at the forefront of many Americans' minds. Some anticipate receiving tax refunds, while others are preparing to settle their dues with the IRS. The survey by AP-NORC revealed that only about 27% of taxpayers consider their federal income taxes to be fair, with 60% believing that their tax burden is excessive.
Contrary to popular belief, the U.S. tax system follows a progressive structure, wherein lower-income individuals contribute a smaller proportion of their earnings towards federal taxes compared to higher-income earners. Alex Muresianu, a senior policy analyst at the Tax Foundation, a think tank specializing in tax matters, highlighted this aspect, stating that "Raising another dollar from someone who's higher income is not as going to be as much of a burden to them as raising another dollar from someone who's lower income."
Rich Americans May Face Higher Taxes
Recent discussions among lawmakers and policy experts have centered around increasing tax rates for wealthy individuals. President Joe Biden has proposed reversing a rate reduction for the nation's top earners that was implemented as part of the 2017 Tax Cuts & Jobs Act. If Biden's proposal is approved, the top marginal tax rate would rise to 39.6% from the current 37%.
According to a recent analysis by the Tax Foundation based on IRS data from 2021, the average federal income tax paid by a typical earner was $14,279, with an average tax rate of 14.9%. However, federal taxes do not include the payroll tax that funds Social Security and Medicare.
The analysis also revealed that the top 50% of earners contribute nearly 98% of the nation's federal taxes, while the bottom 50%, earning below $46,637 annually, only contribute about 2.3% of the total tax receipts. The top 10% of earners, with incomes of at least $169,800, cover approximately three-quarters of the nation's tax bill.
Perceptions of Tax Burden and Support for Tax Increases
Despite popular belief that the middle class shoulders the highest tax burden, the Tax Foundation analysis revealed that the top 1% actually pay the highest federal tax rate at 25.9%. Surprisingly, a Pew Research study from last year found that about 6 in 10 Americans are bothered by the perception that corporations and wealthy individuals are not paying their fair share of taxes.
This sentiment may explain why approximately two-thirds of those surveyed expressed support for higher taxes on the wealthy. The debate over tax rates and who should bear the greatest burden continues as policymakers and the public grapple with issues of fairness and economic equity.
