Discuss Question 22 Discuss Question 20

Discuss Question 21

21. FISCAL KNOWLEDGE: On average, the top one percent of federal taxpayers by income pay an effective income tax rate of less than 20 percent.

ANSWER: True – According to data from the Tax Policy Center, a non-partisan tax analysis partnership between the Urban Institute and the Brookings Institution, the median effective income tax rate of the top one percent is about 18.8%, which is far below the top tax bracket of 35%. This is due in large part to the fact that the wealthiest Americans earn most of their income through long-term capital gains, which are taxed at a flat rate of 15%.  It’s important to note that this only relates to income taxes and not payroll taxes or other taxes.


7 Responses to “Discuss Question 21”

  1. Jeannne Burke says:

    Is it fair to count capital gains in this number. I believe that it is unfair to count capital gains because it distorts the income tax fact of income being paid wages. Capital gains on housing and stocks can basically just keep up with inflation…especially housing

  2. Dennis Sidwell says:

    Sorry, I miss read the question.

  3. Mike Hurley says:

    Capital Gains tax and income tax are the same and that is why the federal tax code seperates them. Therefore the true percentage is only from salaries and wages as capital gains is more often than not taken as income but reinvested.

  4. steve says:

    isnt that on Capital Gains?

  5. Dick says:

    As a CPA who sees many high income tax returns, the answer ignores the fact that the wealthy pay a “tax” on their investment returns from municipal income. They could invest in corporate bonds and pay tax for a net of 65 cents on the dollar, or invest in municipal bonds and receive only 65 cents to begin with (this results in a federal subsidy of the states and municipalities, not the wealthy). Thus, the effect is a “tax” on the wealthy that isn’t captured on the Form 1040.

  6. William Wall says:

    I answered # 21 wrong based on the assumption capital gains are not considered income by the IRs since they are taxed as different rates.

  7. Dustan Everman says:

    Bu that capital gains income has already been taxed at the corporate level, thus making the “effective” rate higher.

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