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Income Tax Analysis for Balanced Budget Year 1998


Income Tax Trivia

  • For 2000, the budget surplus estimate is $237 billion. For 2001, the budget surplus estimate is $281 billion (up 18.6 percent from 2000). Surpluses over the next decade (till 2010?) are projected to total $5.6 trillion.
  • In 1998, 125 million "individual tax returns" were filed. Total Adjusted Gross Income (AGI) was $5,416 billion and personal income tax paid was $789 billion. The "individual tax return" includes couples filing jointly or individuals filing as the head of household, all with dependent children or other dependents.
  • A quarter of all tax returns (about 32 million tax returns) did not show any income tax payable even though they showed a total AGI of about $307 billion (6 percent of total AGI on all tax returns).
  • Some taxpayers had to pay Alternative Minimum Tax (AMT). In 1970, only 19,000 people paid AMT. In 1996, about 600,000 people paid AMT. Under current tax law, in 2007, about 8.7 million people are projected to pay AMT. With 2001 Bush tax cuts, the number is projected to double.

Income Tax Analysis

[1998 Tax Data] [Filing Status] [Group's Share] [Percent of AGI] [Actual Tax] [Flat Tax on AGI] [Flat Tax on Taxable Income] [Proposed Tax] [Roll Your Own Tax Plan] 1998 Tax Data from IRS Tables (All dollars are in thousands except for range and median values)
  Totals Taxpayer Groups   Breakdown of Top 20% By Equal AGI
Bottom 20% Lower Middle 20% Middle 20% Upper Middle 20% Top 20%   Well-Off 12.2% Rich 6.5% Richest 1.3%
AGI Range   Less than $9,144 $9,144 - $19,124 $19,124 - $33,548 $33,548 - $60,237 More than $60,237   $60,237 - $95,216 $95,216 - $285,321 More than $285,321
Median AGI $25,229 $4,382 $13,944 $25,229 $44,012 $85,717   $72,213 $142,619 $437,396
Number of returns 124,770,662 24,954,132 24,954,132 24,954,132 24,954,132 24,954,132   15,220,886 8,104,834 1,628,407
AGI $5,415,972,847 $57,918,897 $349,200,943 $651,879,683 $1,138,551,251 $3,218,422,073   $1,072,807,358 $1,072,807,358 $1,072,807,358
Exemptions & Deductions $1,786,264,995 $170,347,851 $262,667,291 $298,871,890 $385,586,622 $668,791,340   $308,551,679 $238,222,039 $122,017,624
Taxable Income (TI) $3,780,838,200 $11,715,921 $107,945,546 $356,293,769 $753,938,384 $2,550,944,580   $764,531,852 $834,981,962 $951,430,767
Actual Income Tax (IT) $788,541,979 $1,768,158 $13,990,760 $47,288,253 $115,449,358 $610,045,450   $133,225,330 $191,748,949 $285,071,170
                     
No-Tax-Due Returns 31,691,748 17,997,377 9,672,671 3,637,814 348,086 35,801   33,984 8,105 1,628
[1998 Tax Data] [Filing Status] [Group's Share] [Percent of AGI] [Actual Tax] [Flat Tax on AGI] [Flat Tax on Taxable Income] [Proposed Tax] [Roll Your Own Tax Plan] Tax Return Breakdown by Filing Status (All dollars are in thousands except for range and median values)
  Totals Taxpayer Groups   Breakdown of Top 20% By Equal AGI
Bottom 20% Lower Middle 20% Middle 20% Upper Middle 20% Top 20%   Well-Off 12.2% Rich 6.5% Richest 1.3%
AGI Range   Less than $9,144 $9,144 - $19,124 $19,124 - $33,548 $33,548 - $60,237 More than $60,237   $60,237 - $95,216 $95,216 - $285,321 More than $285,321
Median AGI $25,229 $4,382 $13,944 $25,229 $44,012 $85,717   $72,213 $142,619 $437,396
Number of returns 124,770,662 24,954,132 24,954,132 24,954,132 24,954,132 24,954,132   15,220,886 8,104,834 1,628,407
Joint 40% 9% 21% 33% 57% 82%   79% 86% 87%
Single 44% 76% 54% 46% 30% 13%   15% 11% 10%
Separate, Head, Surviving Spouse 16% 16% 25% 21% 13% 5%   6% 3% 3%
AGI $5,415,972,847 $57,918,897 $349,200,943 $651,879,683 $1,138,551,251 $3,218,422,073   $1,072,807,358 $1,072,807,358 $1,072,807,358
Joint 67% (42%) 22% 34% 59% 84%   80% 86% 85%
Single 24% 116% 52% 45% 29% 12%   14% 11% 11%
Separate, Head, Surviving Spouse 9% 26% 26% 21% 12% 4%   5% 3% 4%
Exemptions & Deductions $1,786,264,995 $170,347,851 $262,667,291 $298,871,890 $385,586,622 $668,791,340   $308,551,679 $238,222,039 $122,017,624
Joint 61% 18% 32% 46% 68% 86%   85% 88% 84%
Single 24% 53% 38% 31% 20% 10%   10% 9% 12%
Separate, Head, Surviving Spouse 15% 28% 31% 23% 12% 4%   5% 3% 4%
Taxable Income (TI) $3,780,838,200 $11,715,921 $107,945,546 $356,293,769 $753,938,384 $2,550,944,580   $764,531,852 $834,981,962 $951,430,767
Joint 69% 0% 6% 24% 55% 83%   78% 85% 85%
Single 23% 98% 79% 58% 33% 13%   16% 12% 11%
Separate, Head, Surviving Spouse 7% 2% 15% 19% 16% 3%   1% 3% 4%
Actual Income Tax (IT) $788,541,979 $1,768,158 $13,990,760 $47,288,253 $115,449,358 $610,045,450   $133,225,330 $191,748,949 $285,071,170
Joint 72% 4% 6% 23% 52% 82%   75% 84% 85%
Single 22% 93% 87% 61% 37% 14%   19% 13% 11%
Separate, Head, Surviving Spouse 6% 2% 7% 16% 12% 4%   6% 3% 4%
[1998 Tax Data] [Filing Status] [Group's Share] [Percent of AGI] [Actual Tax] [Flat Tax on AGI] [Flat Tax on Taxable Income] [Proposed Tax] [Roll Your Own Tax Plan] Group's Share
  Totals Taxpayer Groups   Breakdown of Top 20% By Equal AGI
Bottom 20% Lower Middle 20% Middle 20% Upper Middle 20% Top 20%   Well-Off 12.2% Rich 6.5% Richest 1.3%
AGI Range   Less than $9,144 $9,144 - $19,124 $19,124 - $33,548 $33,548 - $60,237 More than $60,237   $60,237 - $95,216 $95,216 - $285,321 More than $285,321
Median AGI $25,229 $4,382 $13,944 $25,229 $44,012 $85,717   $72,213 $142,619 $437,396
Number of returns 100% 20% 20% 20% 20% 20%   12% 6% 1%
AGI 100% 1% 6% 12% 21% 59%   20% 20% 20%
Exemptions & Deductions 100% 10% 15% 17% 22% 37%   17% 13% 7%
Taxable Income (TI) 100% 0% 3% 9% 20% 67%   20% 22% 25%
Actual Income Tax (IT) 100% 0% 2% 6% 15% 77%   17% 24% 36%
                   
No-Tax-Due Returns 100% 57% 31% 11% 1% 0%   0% 0% 0%
[1998 Tax Data] [Filing Status] [Group's Share] [Percent of AGI] [Actual Tax] [Flat Tax on AGI] [Flat Tax on Taxable Income] [Proposed Tax] [Roll Your Own Tax Plan] Values as Percent of Group's AGI
  Totals Taxpayer Groups   Breakdown of Top 20% By Equal AGI
Bottom 20% Lower Middle 20% Middle 20% Upper Middle 20% Top 20%   Well-Off 12.2% Rich 6.5% Richest 1.3%
AGI Range   Less than $9,144 $9,144 - $19,124 $19,124 - $33,548 $33,548 - $60,237 More than $60,237   $60,237 - $95,216 $95,216 - $285,321 More than $285,321
Median AGI $25,229 $4,382 $13,944 $25,229 $44,012 $85,717   $72,213 $142,619 $437,396
AGI 100% 100% 100% 100% 100% 100%   100% 100% 100%
Exemptions & Deductions 33% 294% 75% 46% 34% 21%   29% 22% 11%
Taxable Income (TI) 70% 20% 31% 55% 66% 79%   71% 78% 89%
Actual Income Tax (IT) 15% 3% 4% 7% 10% 19%   12% 18% 27%
[1998 Tax Data] [Filing Status] [Group's Share] [Percent of AGI] [Actual Tax] [Flat Tax on AGI] [Flat Tax on Taxable Income] [Proposed Tax] [Roll Your Own Tax Plan] Actual 1998 Income Tax for Individual Tax Returns (All dollars are in thousands except for range and median values)
  Totals Taxpayer Groups   Breakdown of Top 20% By Equal AGI
Bottom 20% Lower Middle 20% Middle 20% Upper Middle 20% Top 20%   Well-Off 12.2% Rich 6.5% Richest 1.3%
AGI Range   Less than $9,144 $9,144 - $19,124 $19,124 - $33,548 $33,548 - $60,237 More than $60,237   $60,237 - $95,216 $95,216 - $285,321 More than $285,321
Median AGI $25,229 $4,382 $13,944 $25,229 $44,012 $85,717   $72,213 $142,619 $437,396
Group's Share of AGI 100% 1% 6% 12% 21% 59%   20% 20% 20%
Actual Income Tax (IT) $788,541,979 $1,768,158 $13,990,760 $47,288,253 $115,449,358 $610,045,450   $133,225,330 $191,748,949 $285,071,170
Group's Share of Tax 100% 0% 2% 6% 15% 77%   17% 24% 36%
Tax as % of Group's AGI 15% 3% 4% 7% 10% 19%   12% 18% 27%
Tax as % of Group's TI 21% 15% 13% 13% 15% 24%   17% 23% 30%

Now let us look at three different arbitrary methods of taxing an individual's income. The first method taxes everyone's AGI at a flat rate. The second method allows exemptions and deductions as in actual tax calculations, and then taxes everyone's taxable income at a flat rate. The third method attempts to rebuild the logic behind the actual tax system in place by taxing the taxable income of the higher income groups at an increasing rate.

All of the methods below are set to yield the same income tax as was the actual income tax collected in 1998 (about $788 billion). This was done because 1998 was the first year after 29 years that the federal government showed budget surplus. So, the total income tax in 1998 dollar terms must be just about right. At least that's what I think.

Alternate 1 - Equivalent Flat Tax on Adjusted Gross Income

[1998 Tax Data] [Filing Status] [Group's Share] [Percent of AGI] [Actual Tax] [Flat Tax on AGI] [Flat Tax on Taxable Income] [Proposed Tax] [Roll Your Own Tax Plan] Not-A-Chance Alternate - Flat Tax as a Percentage of AGI (All dollars are in thousands except for range and median values)
  Totals Taxpayer Groups   Breakdown of Top 20% By Equal AGI
Bottom 20% Lower Middle 20% Middle 20% Upper Middle 20% Top 20%   Well-Off 12.2% Rich 6.5% Richest 1.3%
AGI Range   Less than $9,144 $9,144 - $19,124 $19,124 - $33,548 $33,548 - $60,237 More than $60,237   $60,237 - $95,216 $95,216 - $285,321 More than $285,321
Median AGI $25,229 $4,382 $13,944 $25,229 $44,012 $85,717   $72,213 $142,619 $437,396
Group's Share of AGI 100% 1% 6% 12% 21% 59%   20% 20% 20%
AGI Flat Tax $788,541,979 $8,432,738 $50,842,131 $94,910,833 $165,768,087 $468,588,189   $156,196,063 $156,196,063 $156,196,063
Group's Share of Tax 100% 1% 6% 12% 21% 59%   20% 20% 20%
Tax as % of Group's AGI 15% 15% 15% 15% 15% 15%   15% 15% 15%
Tax as % of Group's TI 21% 72% 47% 27% 22% 18%   20% 19% 16%

Alternate 2 - Equivalent Flat Tax on Taxable Income

[1998 Tax Data] [Filing Status] [Group's Share] [Percent of AGI] [Actual Tax] [Flat Tax on AGI] [Flat Tax on Taxable Income] [Proposed Tax] [Roll Your Own Tax Plan] Ideal Alternate - Flat Tax as a Percentage of Taxable Income (All dollars are in thousands except for range and median values)
  Totals Taxpayer Groups   Breakdown of Top 20% By Equal AGI
Bottom 20% Lower Middle 20% Middle 20% Upper Middle 20% Top 20%   Well-Off 12.2% Rich 6.5% Richest 1.3%
AGI Range   Less than $9,144 $9,144 - $19,124 $19,124 - $33,548 $33,548 - $60,237 More than $60,237   $60,237 - $95,216 $95,216 - $285,321 More than $285,321
Median AGI $25,229 $4,382 $13,944 $25,229 $44,012 $85,717   $72,213 $142,619 $437,396
Group's Share of AGI 100% 1% 6% 12% 21% 59%   20% 20% 20%
TI Flat Tax $788,541,979 $2,443,505 $22,513,419 $74,309,605 $157,243,456 $532,031,994   $159,452,859 $174,146,127 $198,433,009
Group's Share of Tax 100% 0% 3% 9% 20% 67%   20% 22% 25%
Tax as % of Group's AGI 15% 4% 6% 11% 14% 17%   15% 16% 18%
Tax as % of Group's TI 21% 21% 21% 21% 21% 21%   21% 21% 21%
Tax Discount (Surcharge) from Actual Tax $- $(675,347) $(8,522,659) $(27,021,352) $(41,794,097) $78,013,456   $(26,227,529) $17,602,822 $86,638,161
Tax Discount (Surcharge) as % of Actual Tax 0% (38%) (61%) (57%) (36%) 13%   (20%) 9% 30%

Alternate 3 - Increasing Tax with Increasing Taxable Income

[1998 Tax Data] [Filing Status] [Group's Share] [Percent of AGI] [Actual Tax] [Flat Tax on AGI] [Flat Tax on Taxable Income] [Proposed Tax] [Roll Your Own Tax Plan] Realistic Alternate - Increasing Percentage of Tax on Increasing Taxable Income (All dollars are in thousands except for range and median values)
  Totals Taxpayer Groups   Breakdown of Top 20% By Equal AGI
Bottom 20% Lower Middle 20% Middle 20% Upper Middle 20% Top 20%   Well-Off 12.2% Rich 6.5% Richest 1.3%
AGI Range   Less than $9,144 $9,144 - $19,124 $19,124 - $33,548 $33,548 - $60,237 More than $60,237   $60,237 - $95,216 $95,216 - $285,321 More than $285,321
Median AGI $25,229 $4,382 $13,944 $25,229 $44,012 $85,717   $72,213 $142,619 $437,396
Group's Share of AGI 100% 1% 6% 12% 21% 59%   20% 20% 20%
Proposed % Discount on Tax Owed   90% 75% 50% 33% N/A   25% 10% 0%
Tax Discount Distributed Among Higher Income Groups   $2,199,154 $16,992,559 $38,394,333 $56,630,110 $71,019,713   $47,965,784 $23,053,930 $-
Proposed Income Tax Due $788,541,979 $244,350 $5,664,186 $38,394,333 $114,976,285 $629,262,824   $143,897,352 $207,485,366 $277,880,107
Group's Share of Tax 100% 0% 1% 5% 15% 80%   18% 26% 35%
Tax as % of Group's AGI 15% 0% 2% 6% 10% 20%   13% 19% 26%
Tax as % of Group's TI 21% 2% 5% 11% 15% 25%   19% 25% 29%
Tax Discount (Surcharge) from Actual Tax $0 $1,523,807 $8,326,574 $8,893,920 $473,074 $(19,217,375)   $(10,672,022) $(15,736,417) $7,191,063
Tax Discount (Surcharge) as % of Actual Tax 0% 86% 60% 19% 0% (3%)   (8%) (8%) 3%
Tax Discount (Surcharge) from TI Flat Tax $0 $2,199,154 $16,849,233 $35,915,272 $42,267,171 $(97,230,830)   $15,555,507 $(33,339,239) $(79,447,098)
Tax Discount (Surcharge) as % of TI Flat Tax 0% 90% 75% 48% 27% (18%)   10% (19%) (40%)

New York Times

Citizens for Tax Justice (April 25, 2001)

Alternative Minimum Tax

  • In 1970, the alternative minimum tax was introduced for people who have too creative deductions so that they would otherwise pay little or no tax. It generally hits those with adjusted gross income (AGI) in excess of $75,000 per year. You pay 26% to 28% tax on taxable "ordinary" income and maximum capital gains rate on taxable capital gains income computed according to the AMT rules.
  • AMT tax brackets are not adjusted for inflation where as the "regular" tax brackets, exemptions and standard deductions are adjusted annually for inflation. So, people with modest income and popular deductions make enough money in 1970 terms to fall under AMT.
  • Some reasons for you to fall under AMT:
    • You earn more than $100,000.
    • Your gross income exceeds $75,000 and you deduct state income tax, local income tax, property tax, home loan interest, medical expenses.
    • You exercised stock options during the year.
    • You own a business, rental properties, partnership interests, S corporation stock.
    • You have long-term capital gains.

© Vipan Singla 2001