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<br />CCM Economics, LLC Orange County Tax Equity Page 1 <br /> <br /> I. Introduction <br /> The question of tax equity has been a topic of particular importance lately. One often <br />hears in the popular press, professional peer-reviewed journals, and in national, state, and local <br />elections the question of who is ‘paying their fair share’. For example, according to data from <br />the Internal Revenue Service and the Congressional Budget Office, the top 1% of all federal <br />income taxpayers in the United States made 20.6% of all adjusted gross income (AGI) in the <br />country in 2014. However, these top 1% taxpayers paid 39.5% of all income taxes. Similarly, <br />the top 25% of all federal income taxpayers made 69% of all adjusted gross income but paid <br />87% of all federal income taxes collected. The bottom 50% of taxpayers made just 11.3% of all <br />adjusted gross income but paid 2.8% of all federal income taxes.1,2 <br />When one considers other sources of federal taxation and income transfers, these tax <br />share numbers can change significantly depending upon the metric that one uses. For example, <br />the Federal Insurance Contribution Allowance, commonly known as FICA which funds <br />programs such as Social Security, is a flat tax of 6.20% on wage income up to $127,000 in 2017. <br />This means that two different workers, one who earns $127,000 in wages and one who earns <br />$227,000 in wages will pay the same amount of tax, $7,874, to the Social Security <br />Administration. However, as a percentage of income, the lower paid worker faces a larger <br />burden from the tax. He will have paid 6.20% of his wage income in FICA taxes, while the <br />higher paid worker will have paid 3.47% of his wage income in FICA taxes. <br />Nevertheless, high income households tend to receive a very small percentage of any <br />income transfers programs such as food stamps or Aid to Families with Dependent Children <br />(AFDC commonly known as welfare). Furthermore, due to the progressive nature of many <br /> <br />1 IRS Statistics of Income, available at https://www.irs.gov/uac/soi-tax-stats-individual-statistical-tables-by-tax-rate- <br />and-income-percentile <br />2 Congressional Budget Office, “The Distribution of Household Income and Federal Taxes, 2013”, available at <br />https://www.cbo.gov/sites/default/files/114th-congress-2015-2016/reports/51361-householdincomefedtaxes.pdf <br />38