Assignment 8 – Measuring the Burden of the Individual Income Tax
Question 1
0
78
S
1
Go to http://www.irs.gov/taxstats/.
Under the section entitled "Individual Tax Statistics," click on Individual Income Tax. Multiple sections
appear on the next screen. Under the section labeled Statistical Tables, click “by size of Adjusted Gross
Income.” Again, multiple categories of data appear on the next screen. Go to the section of the page labeled
“Individual Income Tax Returns Filed and Sources of Income,” and click on the 2009 link under “All Returns:
Sources of Income, Adjustments and Tax items.” Open the spread sheet for that year and use the data
available to answer the following questions.
Over 140 million individual tax returns were filed for 2009. Insert a column beside column B (Number of
returns) and create cumulative totals for each row. For example, new column C, row12 would show that
25,179,895 returns were filed reporting adjusted gross incomes under $10,000. Approximately what
percentage of the individual tax returns filed for 2009 reported adjusted gross income of less than $50,000?
Answer:
Question 2
1
80
S
1
S
1
What was the average AGI reported on
individual returns for 2009?
Answer:
Question 3
2
82
Let’s turn to capital gains. In 2003,
Congress reduced the maximum tax rate on long-term capital gains to 15%. Preferential treatment of capital
gains is often criticized as a tax benefit for the wealthy. For example, Warren Buffett frequently notes that
his tax rate is lower than his secretary’s because his income comes overwhelmingly from capital gains (and
dividends) while hers comes from salary and wages. Focusing solely on capital gains, note that in 2009,
taxpayers reported aggregate taxable net capital gains of roughly $263 billion. What percentage of these
net gains was reported by people with adjusted gross incomes of $1 million or more? What percentage was
reported by people with adjusted gross incomes under $50,000?
Answer 1:
Answer 2:
Question 4
Assume that AGI of $250,000 puts someone in the top ½ of 1 percent of tax returns filed in 2009.
3
84
S
1
What percentage of taxable net capital
gains was reported by the top ½ of 1 percent of taxpayers (based on AGI) in 2009? Remember that you are
calculating the percentage of taxable net capital gains reported by everyone making $250,000 or more in
2009.
Answer:
Question 5
OK, now turn to social security benefits. What percentage of returns filed in 2009 reported social security
benefits? What percentage of these benefits was taxable? (Note that the second question asks about the
benefits received, while the first asks about the number of returns filed by recipients of social security
benefits.)
Answer 1:
Answer 2:
Question 6
What percentage of returns filed Schedule C in 2009 (income or loss from business or profession using the
language of Table 1.4)?
Answer:
Question 7
6
90
S
1
Here’s an interesting observation—how
many more taxpayers reported an adjustment for alimony paid than reported income from alimony
received? What is one potential explanation for this observation other than dishonest reporting?
Answer:
Explanation:
Question 8
7
92
S
5
Now open another spreadsheet. Go back
to the Tax Stats page for individuals and open the 2009 spreadsheet under “All Returns: Adjusted Gross
Income, Exemptions, Deductions, and Tax Items.” Here we can find the aggregate amount of income tax
paid, after tax credits, by taxpayers in each AGI category (columns K and L). We often hear that almost half
of all taxpayers pay no income tax. Now many people are not required to file returns, but 140 million
returns were filed in 2009. We can obtain a rough estimate of the number of people included in these
returns by dividing the exemption amount by $3,650—doing so yields a rough estimate of the population of
taxpayers who filed returns in 2009 of over 280 million. The U.S. population was around 308 million at the
end of 2009, indicating that about 90 percent of the population was included in an individual income tax
return.
Of the tax returns filed for 2009, what percentage reported some income tax liability? Ignoring those returns
reporting AGI under $10,000, what percentage reported some income tax liability?
Answer 1:
Answer 2:
Question 9
8
94
S
1
S
4
Dividing “Income tax after credits” by
“Adjusted gross income less deficit,” compute the effective tax rate for taxpayers in the following AGI
groups. For this purpose, calculate the effective tax rate as the ratio of income tax after credits divided by
AGI. Note that the groups for which you are making this calculation are not the same as the groups on the
spreadsheet. Also note that you will be referring back to these figures in your written assignment for next
week in which you will be analyzing the effects for different income groups of converting the income tax to a
flat tax.
Answer:
$10,000 under $75,000
$75,000 under $200,000
$200,000 under $500,000
$500,000 under $10 million
$10 million or more
Question 10
9
96
What percentage of total tax returns filed
in 2009 report AGI of $200,000 or more? What percentage of total AGI is received by these taxpayers?
What percentage of income tax after credits do they pay?
What percentage of total tax returns filed in 2009 report AGI of $1,000,000 or more? What percentage of
the total AGI do they receive? What percentage of total income tax after credits do they pay?
Answers:
$200,000
$1 million
or more
Percent of population in AGI group
Income share, AGI group
Tax share, AGI group
or more