I recently was talking with someone who said wealthy people should pay their fair share of income taxes, and I asked, “What do you mean by ‘fair share ‘?” He struggled with the question, so I said, “Do you mean that a group of people with 50% of all the income should pay 50% of all the income tax?” He immediately said, “Yes!”
Many Americans believe ‘the wealthy’ use loopholes to get away with paying very little income tax because that’s what they’ve been told by tax cut opponents (and reporters don’t challenge the assertion). Here’s the truth: those with the highest incomes pay more than their fair share of the income tax burden.
According to the Kansas Department of Revenue, those with Kansas Adjusted Gross Income (KAGI) of $250,000 or more accounted for 34% of all KAGI and paid 40% of all individual income tax. Those with KAGI between $100,000 and $250,000 accounted for 33% of income and paid 36% of income tax.
Those in the $75,000 to $100,000 bracket have the same 9% share of income and taxes, and those below $75,000 pay a smaller share of income tax than their share of total KAGI.
In short, what people have been told is upside down from reality.
2024 tax reform helped everyone
One big feature of the 2024 tax reform in Kansas – exempting some income from taxation with larger standard deductions – completely wiped out the income tax liability for those with incomes below $25,000. They paid $22 million in income tax in 2020, but that fell to an $11 million credit in 2024, reducing their effective tax rate (ETR) from 0.4% to negative 0.3%.
The effective tax rate (tax liability divided by KAGI) dropped from 2.5% to 2.2% for those with incomes between $25,000 and $50,000. The next three brackets in the above table each enjoyed a decline of 0.1% in their effective tax rate. Those with incomes over $250,000 paid the highest ETR of 4.2%, which was the same as in 2020.
The 2024 rate reductions helped, but Kansas income tax rates are still uncompetitive, which has a lot to do with Kansas losing population from domestic migration.
Federal fair share assumptions are also upside down
As with the state income tax, those with the highest incomes also pay a larger proportion of the federal income tax.
A recent column in Unleash Prosperity cited a Washington Post editorial which said “the rich already pay more than their fair share.”
The Post’s analysis of 2023 IRS data shows that people with incomes over $1 million account for 17% of all income but pay 32% of federal income tax. Each bracket shown below that is over $100,000 also pays a higher share of tax relative to their share of income.
Conversely, those with incomes below $75,000 account for 32% of income but pay only 13% of the tax.
So, the next time someone tells you ‘the rich’ should pay their fair share of income taxes, lean into it:
“I agree that each group of taxpayers’ share of the income tax burden should be the same as its share of total income. That’s what you mean by fair share, right?”
