Utah's Burden of Federal Income Tax

In looking at Utah’s tax burden, the federal income tax represents a large percentage of that burden, particularly for those who make more than a modest income. The Utah Tax Commission has some interesting data on their website and I’ll be taking that data and examining it a little bit. The federal income tax is not as progressive as it was prior to the Reagan administration, when the marginal tax rate for the wealthy was at 90%. However, the federal income tax remains relatively progressive. For return year 2006, Utahns paid nearly $6.2 billion in federal income tax for individual filers. And though filers with Adjusted Gross Income (AGI) over $1 million represent only .19% of the population, they pay 23.58% of the federal income tax burden in Utah. Taking the effective tax rate of filers within certain AGI ranges produces the average effective tax rates as shown below:

------AGI Class(thousands)-----------Effective Tax Rate
________________>0____________________________-.22% _______________0-5_____________________________.38%
_______________5-10___________________________1.16%
_______________10-15__________________________2.09%
_______________15-20__________________________2.76%
_______________20-25__________________________3.53%
_______________25-30__________________________4.12%
_______________30-35__________________________4.43% _______________35-40__________________________4.74%
_______________40-45__________________________5.02%
_______________45-50__________________________5.38%
_______________50-75__________________________6.31%
_______________75-100_________________________7.84%
______________100-250________________________12.36%
______________250-1,000______________________21.10%
_____________Over 1,000______________________24.97%

What the chart shows, is that despite various tax cuts to the wealthy, the federal income tax remains a fairly progressive tax. What it also means, is that if you give future tax cuts in the income tax, the majority of the benefit will go to the wealthy because, frankly, they are the ones who are paying the most tax.
The chart below also shows the percentage of Utahns by AGI class and the percentage of the federal tax burden.

AGI Class(thousands)_______Returns Filed_____%Income Tax Paid
>0 _______________________1.21%_______________.03%
0-5_______________________8.11%_______________.01%
5-10______________________8.50%_______________.13%
10-15_____________________7.93%_______________.36%
15-20_____________________7.83%_______________.65%
20-25_____________________7.17%_______________.98%
25-30_____________________6.31%______________1.23%
30-35_____________________5.56%______________1.38%
35-40_____________________4.94%______________1.51%
40-45_____________________4.46%______________1.64%
45-50_____________________4.06%______________1.79%
50-75____________________15.34%_____________10.26%
75-100____________________8.52%______________9.92%
100-250___________________8.47%_____________25.01%
250-1,000_________________1.40%_____________21.52%
Over 1,000________________0.19%_____________23.58%


It is interesting to note that filers with an AGI of less than $50,000 pay less than 10% of Utah's federal income tax burden.

These figures have certain implications. First of all, any attempts at a flat federal income tax would massively redistribute the tax burden from those making making over $100,000 a year to those making less. Also, any attempt at gutting the federal income tax and replacing it with a tax on consumption (a regressive tax), would even more massively redistribute the tax burden. And though conservatives will often argue that a flat tax or consumption tax is more fair, that fairness needs to be explained to Americans of all stripes about what it will mean to their own overall tax burden.

As mentioned before in other posts, I have indicated that Farmers generally don’t pay any taxes. Statistics from people who file a schedule F, shows that Utah’s agricultural production results in a net decrease in federal and state income taxes. Given what farmers and ranchers are allowed to expense and capitalize, every AGI class showed negative earnings and therefore reduced the federal tax liability of those who engaged in agricultural activities. The 17,414 schedule F’s for return year 2006 resulted in $137.7 million in farm losses which were deducted from Utah’s federal and state income tax base, of which over half of that amount or $76.2 million was from returns where the AGI exceeded $50,000 for return year 2006. It is interesting to note that 55% of the returns filed which filed a schedule F had an AGI over $50,000 for 2006. What this means, is that there may be many engaged in agriculture who do so part-time, and the purpose of which is to reduce federal and state tax liabilities on their more considerable sources of income. Now because we have to eat, I do think there are some good reasons for helping our farmer’s out and encouraging land be used for agricultural purposes, but I do think it is fair to the citizens of the state to recognize the degree to which they are in fact subsidizing farmers in our state by paying their share of our tax burden to provide services for our schools, roads and other worthwhile services.