If only people with at least $1,000,000 annual income were taxed, what would their tax rate have to be to avoid a drop in income tax revenue?

Question

If personal income taxes were eliminated entirely for anyone with less than $1,000,000 income, there is one flat tax rate for those who are taxed, and corporate income taxes and all other taxes staued the same, what would the income tax rate for people with over a million dollar of annual income have to be for there to be no drop in tax revenue? I'm mostly interested in statistics for the US federal government, but answers for individual states would also be interesting.

Answer 1

Disclaimer: These are very rough estimates and I'm not an expert on taxes. And there can be relevant hidden variables like tax deductions, reduction of income and income that is not subject to income tax and so on.

The total yearly income tax collected is about $2.35 trillion and there are about 1-2 million people in the 1% who make on average 1.4 million dollars in income and their tax rate is ~32%. So, 1.5 million people * 1.4 million dollars * 32% = $670 billion.

So, if you raise their tax rate to 100%, they'd almost be able to carry the tax load alone ($2.1 trillion). So not enough to be feasible right now but the inequality in the U.S. is already staggeringly close to that. Also, if you double their tax rate, they could cover more than half of the current tax income (from income tax) and they'd still be between the top 2% and top 5% of (gross) income earners.

Also, just out of curiosity if you go down to $300k (top 10%) and a tax rate of 50% you'd already be able to net ~$2.25 trillion, so close to the budget, and they'd still have $150k left (closer to the top 25%).

Again, these are very rough estimates and I'm not an expert so take them with a grain of salt.

Answer 2

If only people with at least $1,000,000 annual income were taxed, what would their tax rate have to be to avoid a drop in income tax revenue?

The tax rate would be close to or over 100%, as shown in the answer by haxor789. "Tax the rich, feed the poor, 'Til there are no rich no more." The rich would simply move their wealth, their companies, and themselves to other countries. If this was a strict cutoff, people would either simply stop working (and stop contributing to society) once their annual income reached $999999 -- or they would leave. If this was a marginal rate that kicked in at 100% of income over one million pear year, they would similarly stop working at $999999, or they would leave. Tax revenues would drop to near zero.

I understand that some people love to hate the rich. But society needs them, at least to some extent. The extent to which they are needed is debatable, but they are needed as engines of societal improvements. How much they should be taxed is debatable. Whether they are currently taxed too much or too little is debatable. But trying to shift all of the taxation burden onto only the rich is highly counterproductive. It not only won't work, but doing so would be highly detrimental to society. If this is done, society will inevitably collapse (e.g., the collapse of the USSR). What one will find is that the people who desired to be rich had found ways to be hiding in plain sight, only to come out as oligarchs after the collapse.

Answer 3

According to the federal reserve , Q1 of 2020 the top 1% was worth $30.2T. One year later, Q1 2021 they were worth $40.84T, so in that year they collectively made $10.64T. The federal income taxes that year collected $3.46T.

$3.46T / $10.64T = 32.5% replacement rate

Of course, the rich don't really get "income" of the kind most of us know and understand, which makes it confusing how one can be much wealthier year-on-year yet still have a modest taxable income.