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Are the rich undertaxed?
The answer often depends on who is speaking and how they choose to look at it.
Those who argue that the rich are actually overtaxed may say, for example, that the people whose incomes are in the top 1 percent pay roughly 23 percent of all federal taxes. (Others who have this opinion argue that the burden on the rich is even higher. PolitiFact.com examined those claims in 2010.)
At a Feb. 13 community dinner at the Pilgrim Senior Center, in Warwick, Sen Sheldon Whitehouse offered a different perspective to argue that the richest aren't overtaxed at all.
"The IRS recently reported that the 400 biggest income earners in the country were making $334 million each, and were paying 16.6 percent in taxes," he said.
According to an account of the meeting in The Warwick Beacon, Whitehouse went on to say that, most people wouldn’t have a tax rate that low unless their income was $28,100 or below.
"A hospital orderly making $29,000 a year is therefore paying a higher rate of taxes on their income than someone making $344 million," the Beacon quoted Whitehouse as saying.
We decided to check elements of both statements -- the rate the rich paid and the lower income level that would trigger a similar rate.
When we asked Whitehouse's staff for the source of the 16.6 percent figure, they sent us to an IRS website that has statistics on the tax returns of the 400 individual taxpayers with the highest adjusted gross incomes. The most recent tax year available is 2007.
(According to a transcript provided to us by the Whitehouse staff, the senator actually said he thought the report was from 2009.)
One other clarification is important. The IRS is reporting on the top 400 individual tax returns, which could include a couple filing jointly.
The IRS report says that, in 2007, the average adjusted gross income for the top 400 returns was $344 million. The average income tax paid per return was $57 million -- an average of 16.6 percent, as Whitehouse said. So on that point, he was right.
Out of curiosity, members of PolitiFact Rhode Island checked our returns for 2007. We found that our tax rates were even lower than 16.6 percent, and we make a lot more than Whitehouse's hypothetical $29,000-a-year hospital orderly.
So we checked Whitehouse's example, using tax rates, standard deductions and personal exemptions for both 2007 and 2010.
We discovered that Whitehouse was off -- way off.
That unmarried orderly filing a simple single return would be taxed at a rate of 9.1 percent in 2007 and 8.7 percent in 2010, not more than 16.6.
Then, using IRS tax tables and schedules, we did some math to determine how much income a single person filing the simplest tax return would need before his tax rate exceeded that of the richest Americans.
To hit a tax rate of 16.6 percent, that orderly would need to have made about $68,750 in 2007 and $73,500 in 2010, we calculated.
When we showed our numbers to Whitehouse's staff, they said our results were misleading because we failed to include taxes for Medicare (1.45 percent) and Social Security (6.2 percent on the first $106,000 of income).
"The vast majority of the income of the 400 wealthiest Americans is not subject to payroll taxes, whereas a worker with annual income around $29,000 would have to pay payroll taxes on all of their income," a statement from Whitehouse’s office said.
"Leaving this data out of any comparison will paint a very uneven picture of the total taxes paid by working-class Americans."
Although IRS spokeswoman Peggy Riley said those taxes are not factored into the IRS analysis, we understand the point of including them because the Social Security tax, in particular, has a significant impact on low- and middle-income people.
According to calculations by Whitehouse’s office -- which match our own -- when you include Social Security and Medicare taxes, the effective tax rate for the wealthiest 400 Americans would have been 16.72 percent in 2007; the tax rate for a worker earning $29,000 a year would have been 16.79 percent.
In short, Whitehouse accurately reported the IRS's most recent summary of its top 400 tax filers, even if he incorrectly cited the year of the report.
When we audited his suggestion that the super-rich pay a lower rate than someone making just $29,000, we concluded he's right if you include all payroll taxes, but off by about $40,000 if you only consider income tax, as the IRS report does.
We rate his statement as Mostly True.
PolitiFact.com, "Trent Franks says top 1 percent pays over half of the entire revenue for U.S.," July 9, 2010
WarwickOnline.com, "Voters dish out questions on economy," Feb. 15, 2011, accessed Feb. 21, 2011
Emails and interview, Seth Larson, spokesman, Sen. Shelton Whitehouse, Feb. 18, 21, 22, and 23, 2011
IRS.gov, "The 400 Individual Income Tax Returns Reporting the Highest Adjusted Gross Incomes Each Year, 1992-2007," accessed Feb. 21, 2011
IRS.gov, "SOI Tax Stats - Individual Statistical Tables by Tax Rate and Income Percentile," accessed Feb. 21, 2011
CBPP.org, "Tax Rate for Richest 400 Taxpayers Plummeted in Recent Decades, Even as Their Pre-Tax Incomes Skyrocketed," Center on Budget and Policy Priorities, Feb. 23, 2010, accessed
TaxPolicyCenter.org, "Personal Exemptions and Deductions - 2001-2010," Oct. 26, 2009, accessed Feb. 22, 2011
IRS.gov, "2007 Tax Table," accessed Feb. 22, 2011
IRS.gov, "2010 Tax Table," accessed Feb. 22, 2011
Interview, Peggy Riley, spokeswoman, Internal Revenue Service, Feb. 23, 2011
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