IRS Data shows the growth of the Tax Code

According to IRS data, tax code progressed more in 2004 than it did in 2000. There was a continuous outpouring of revenue into the summer and fall of 2006.

When high-income taxpayers pay a larger percentage of their income in taxes than lower-income taxpayers, a tax system is said to be progressing.

When a tax system is proportional, each income group's share of tax payments should be equivalent to its share of income.

For instance, if tax returns with adjusted gross income (AGI) between $200,000 and $5000.00 account for 9.97 percent of personal income, then they would pay 9.97 percent of the taxes. But if tax returns with AGI between $40,000 and $50,000 account for 6.97 percent of income, then they would pay 6.97 percent of the taxes. So, as you have seen, in a proportional tax system, the ratio of tax share to income share is equal to 1.

Because of the growth in the U.S. federal tax system, the $200,000 - $500,000 group didn't pay 9.97 percent in 2004; on the contrary, they paid a whopping 17.89 percent. And the $40,000 - $50,000 group didn't pay 6.97 percent; they paid far less at 4.20 percent.

For those who believed that the cuts benefited only the rich, they are in for a surprise. Tax year 2004 is the first to reveal the full effect of the major Bush tax cuts that took effect in May 2003.

It may be tempting to conclude that the tax cuts targeted primarily low to middle income people (the new 10 percent bracket, the doubled child credit, the marriage penalty relief, and reduction of the 28 percent rate to 25 percent) outweighed those targeted at high earners. However, it is difficult to distinguish between the impact of Bush's tax cuts and other developments in the economy.

One can say with confidence though that higher earners definitely did not escape paying their share of taxes.

People who made more than $100,000 a year (break point) carried a heavier tax load in 2004 than in 2000 for the same amount of income. However, the income of those who made less than $100,000 was more than their tax payment, which made them appear to have gotten a good deal from the Bush tax cuts.

Some in the media have chosen $200,000 or more as the income that determines if a person is rich.

In 2000, tax returns with an AGI of over $200,000 received 26.7 percent of all income, and they compensated for 47.3 percent of all income taxes. That's a tax-to-income ratio of 1.79. Nevertheless, four years later, their income had taken a fall from 26.7 to 25.5 percent, but their taxes had increased to 50.0 percent. That brought the ratio up from 1.79 to 1.96 in 2004.

Considering that the Bush tax cuts are the deciding factor, the only conclusion is the new 10 percent bracket, and increased child credit that's reduced the tax payments for lower-income earners. Because of that, the group with the ratio of tax share to income share for the $25,000 - $30, 000 was sliced in half.

In addition, tax filers in the $75,000 - $100,000 group had more to gain than filers earning $50,000 - $75,000.

Most likely, the higher income group earned enough to benefit from elimination of the marriage penalty and from slicing the 28 percent rate to 25 percent, but they didn't make so much that they lost the benefit of the doubled child credit or the new 10 percent bracket. Their share of the nation's income grew significantly and their tax share barely grew at all.

For the tax filers making between $200,000 and $500,000 they saw an increase in their tax share more than the groups that earned over $500,000. This is the result of the Alternative Minimum Tax (AMT). It takes away many of the Bush tax cuts for filers in this income group. Given that tax filers earning above $500,000 already owe more under the regular income tax code, they do not fit into the AMT category.

Not knowing how much the Bush tax cuts caused this massive growth between 2000 and 2004, one can only speculate that as a result of the tax cuts passed in 2001 and 2003, the cuts aimed at tax filers who earned less than $100,000 turned out to be more powerful than the cuts aimed at those earning more than $100,000.

Earnest Young is a tax and accounting writer for Accent Accounting and Taxes

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