Since tax hikes are back in the news, I’ve been poking away at the data – just to try to understand – and to separate fact from fiction.
First stop: a look at deductions.
Below is a recap of AGI, and taxable income – right from the IRS site. The difference between the two is made up of deductions and exemptions – the so-called “loopholes”.
Note that millionaires – defined as tax filers with AGIs > $1 million – only shelter about 10% of their AGI. Sure, that accounts for a pile of dollars, but I expected the number to be a lot higher.
Also note that for low income folks, taxable income is a very small portion of their AGI. Said differently, practically all of their AGI is sheltered by exemptions and the standard deduction. That’s not surprising.
In the middle brackets, tax filers are sheltering about 1/3 of their AGI in exemptions, and deductions such as mortgage interest, local taxes and charitable contributions.
My bet: those are the folks who will get caught in the crossfire when deductions get eliminated.
