Dispelling Urban Myths About Income Taxes

Tax season is in full force. So now is probably a good time to dispel some myths about US income taxes. These myths are so regularly deployed by certain political segments that they've become part of the common dialogue. But that doesn't make them any less false.


Myth #1
Americans pay too much in income taxes.

Fact #1
"Too much" is a relative term. But Americans pay an average overall income tax rate of only 11%. It's hard to make the case that is "too much."


Myth #2
The rich don't pay their fair share in income taxes.

Fact #2
"Fair" is a judgement call. But the US income tax is very progressive. The top 1% of taxpayers pay an average overall tax rate of 24%. The other 99% of taxpayers pay an average overall tax rate of only 8.4%. Hardly "unfair."


Myth #3
The rich make out like bandits exploiting loopholes and end up paying less in taxes than the average taxpayer.

Fact #3
Even after credits and deductions the tax system is very progressive. Those who earn over $250k pay an overall rate of over 23%. Those who earn between $100k and $250k average about 13%. From $50k to $100k it's about 8%. From $30k to $50k it's about 3%. Below that people actually pay negative taxes--they get refunds (credits) for taxes they didn't pay

Myth #4
Every year the rich pay less of the tax burden. It's an example of the rich getting richer and the poor getting poorer.

Fact #4
Actually the reverse is true. Since 1986, the rich have paid a progressively higher and higher percentage of the tax burden. In 1986, the top 10% of taxpayers paid 54.7% of the taxes. In 2010 they paid 70.5%. In 1986, the bottom 50% of taxpayers paid 6.5% of the taxes. In 2010, they paid only 2.3%.


Myth #5
More and more people have to pay taxes because the rich aren't paying as much.

Fact #5
Actually the percentage of income tax filers who end up paying no tax is higher than it has ever been. In 2010 42% of income tax filers paid either no tax or got money back for taxes they didn't pay.


Myth #6
The gains of the rich come at the expense of other Americans.

Fact #6
The truth is the fortunes of the rich and those of more modest incomes have risen and fallen together. In booming years, all averages of incomes rise. In bust years, all averages fall.


Myth #7
If we just taxed the richest Americans more we could solve the budget deficit problem

Fact #7
Even if we taxed those who make $1 million a year or more at a 100% tax rate, the budget would still not balance.


Myth #8
US income taxes punish investment and reward consumption.

Fact #8
Unfortunately, this is true.


Source: The Tax Foundation