by Howard Stephenson
Are the wealthy paying their fair share of taxes?
IRS statistics show that the top one-tenth of filers pay 67% of total federal income tax collections. At the same time, the highest-earning quarter accounted for a lion’s share (84%) while the top half of income earners accounted for virtually the entire amount (96%). The various levels of income brackets are disproportionate to the percentages of taxes paid.
Contrary to popular belief, the greater amount of total taxes paid by the wealthy is not just a matter of the same percentage applied toward a bigger income, but rather a higher percentage applied to a larger income. Taxpayers that grossed $92,000 or more accounted for about half of the total Adjusted Gross Income (AGI) but paid two-thirds of the taxes. This trend continued up the income scale, but actually reversed itself on the way down. Therefore, the wealthy are clearly paying more than their fair share.
Despite the fact that Utah state income tax rates are not progressive like the federal, Utah income tax statistics have consistently shown that the wealthy pay disproportionately higher taxes in the Beehive State just as in the nation as a whole.
Wealthy Utahn’s are motivated to make Nevada or Wyoming their homes
Utah has a 7% top state income tax rate while two of our neighboring states, Wyoming and Nevada have no income taxes at all. This can be a real motivator in convincing wealthy Utahn’s to leave their homes and move to these states.
Wyoming Real Estate Broker Bob Graham recently stated that wealthy people are moving to Wyoming primarily for tax advantages, not outdoor activities and culture. In an April 18 Salt Lake Tribune article he said the amenities of Jackson Wyoming are “. . . second only to the enormous tax advantage the state of Wyoming offers.”
State Income Tax Revenues Drop as Wealthy Earn Less
The impact of wealthy taxpayers on Utah income tax revenues has recently been demonstrated in figures published by the Utah Taxpayers Association.
Utah individual income tax revenues declined 2.7% from 2000 to 2002 despite combined inflation and population growth of more than 8%. Nearly the entire revenue decline is attributable to very high income households experiencing a significant reduction in income, primarily capital gains, according to the Taxpayers Association.
This analysis compares income from 2002, the most recent Utah State Tax Commission data available that breaks state income tax revenue by income class and income source, and income from 2000.
Total income of households earning more than $250,000 decreased 25.2%. The number of households with income exceeding $250,000 decreased 13.7%. In 2000, households earning more than $250,000 comprised 1% of all households and earned 16.5% of all income. By 2002, the percent of households earning more than $250,000 decreased to 0.85% and income earned by these households had decreased to 12.6% of total state income.
The total number of tax returns increased 2.2%. The number of returns for incomes between $100,000 and $250,000 increased 6.1%, and the number of returns for incomes between $75,000 and $100,000 increased a significant 9.9%. The increase in returns in these two brackets was largely due to aforementioned decrease in the number of returns for total incomes exceeding $250,000.
Much of the overall decrease is attributable to decreases in non-wage income such as interest, dividends, and capital gains. While aggregate wages actually increased 4.5% from 2000 to 2002, total income decreased 1.83%. Changes in sources of income are demonstrated in the accompanying chart.
Utah Income Tax – Sources Income, 2000 and 2002 ($million)
Source: Utah State Tax Commission, additional calculations by the Utah Taxpayers Association
Utah Income Tax – Income by Income class, 2000 and 2002 ($million)
Source: Utah State Tax Commission, additional calculations by the Utah Taxpayers Association