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With Washington gridlocked again over whether to raise their taxes, it turns out wealthy families already are paying some of their biggest federal tax bills in decades even as the rest of the population continues to pay at historically low rates.
President Barack Obama and Democratic leaders in Congress say the wealthy must pay their fair share if the federal government is ever going to fix its finances and reduce the budget deficit to a manageable level.
A new analysis, however, shows that average tax bills for high-income families rarely have been higher since the Congressional Budget Office began tracking the data in 1979. Middle- and low-income families aren't paying as much as they used to.
For 2013, families with incomes in the top 20 percent of the nation will pay an average of 27.2 percent of their income in federal taxes, according to projections by the Tax Policy Center, a research organization based in Washington. The top 1 percent of households, those with incomes averaging $1.4 million, will pay an average of 35.5 percent.
Those tax rates, which include income, payroll, corporate and estate taxes, are among the highest since 1979.
The average family in the bottom 20 percent of households won't pay any federal taxes. Instead, many families in this group will get payments from the federal government by claiming more in credits than they owe in taxes, including payroll taxes. That will give them a negative tax rate.
"My sense is that high-income people feel abused by being targeted always for more taxes," Roberton Williams, a fellow at the Tax Policy Center, said. "You can understand why they feel that way."
Last week, Senate Democrats were unable to advance their proposal to raise taxes on some wealthy families for the second time this year as part of a package to avoid automatic spending cuts. The bill failed Thursday when Republicans blocked it. A competing Republican bill that included no tax increases also failed, and the automatic spending cuts began taking effect Friday.
The issue, however, isn't going away.
Obama and Democratic leaders in Congress insist that any future deal to reduce government borrowing must include a mix of spending cuts and more tax revenue.
"I am prepared to do hard things and to push my Democratic friends to do hard things," Obama said Friday. "But what I can't do is ask middle-class families, ask seniors, ask students to bear the entire burden of deficit reduction when we know we've got a bunch of tax loopholes that are benefiting the well-off and the well-connected, aren't contributing to growth, aren't contributing to our economy. It's not fair. It's not right."
On Sunday, Senate Republican Leader Mitch McConnell of Kentucky said Republicans are committed to reducing the budget deficit without raising taxes again. In a separate broadcast interview, White House economic adviser Gene Sperling called that position unreasonable.
The Democrats' sequester bill included the "Buffett Rule," named after billionaire investor Warren Buffett. It gradually would phase in a requirement that people making more than $1 million a year pay at least 30 percent of their income in federal taxes.
The rule targets millionaires who make most of their money from investments — capital gains and qualified dividends, which have a top tax rate of 20 percent.
"It's fairness," said Sen. Claire McCaskill, D-Mo. "We're not raising taxes with the Buffett rule as much as we are correcting an inequity in terms of, one guy can be working at one end of the hall and because he's working with hedge funds, he gets taxed at 20 percent. Another guy at the other end of the hall is on a salary at an insurance company and he has to pay (39.6 percent). That's just not fair."
On average, households making more than $1 million this year will pay 37.2 percent of their income in federal taxes, according to the Tax Policy Center. But there are exceptions.
For example, the Internal Revenue Service tracks tax returns for the 400 highest-paid filers each year. Those taxpayers made an average of $202 million in 2009, the latest year available. Their average federal income tax rate: 19.9 percent.
That's still higher than the tax rate paid by most middle-income families, but not by much.
The middle 20 percent of U.S. households — those making an average of $46,600 — will pay an average of 13.8 percent of their income in federal taxes for this year, according to the Tax Policy Center. Over the past three decades, the average federal tax rate for this group has been about 16 percent.
The Associated Press analyzed two sets of data to compare tax burdens over time.
The CBO produces data from 1979 to 2009; the center has overlapping data from 2004 through 2013. Both get tax data from the IRS, but they use slightly different methodologies to calculate federal tax burdens.
Still, their numbers track closely enough to make some general observations. For example, it is clear that for 2013, average tax bills for the wealthy will be among the highest since 1979. It also is clear that federal taxes for middle- and low-income households will stay well below their averages for the same period.
Liberals and many Democrats say rich families can afford to pay higher taxes because their incomes have grown much more than incomes for middle- and low-income families.
Average after-tax incomes for the top 1 percent of households more than doubled from 1979 to 2009, increasing by 155 percent, according to the CBO. Average incomes for those in the middle increased by just 32 percent during the same period while those at the bottom saw their incomes go up by 45 percent.
"You've got to think about the context," said Chuck Marr, director of federal tax policy for the Center on Budget and Policy Priorities, a liberal think tank. "We just had three decades in the United States where we had a tremendous increase in inequality."
The growing disparity in income is a big reason why tax bills for the rich are approaching 30-year highs, Williams said. As the rich get richer, a greater share of their income is taxed at the top rate, he said.
High-income families also have been targeted by tax increases this year, including a new tax law passed by Congress on Jan. 1 as well as tax increases in the president's health care law.
The new tax law made the federal income tax more progressive, increasing the top tax rate from 35 percent to 39.6 percent, on taxable income above $400,000 for individuals and $450,000 for married couples filing jointly. Lower tax rates on income below those amounts were made permanent. Also, tax breaks for low-income families first enacted as part of Obama's 2009 stimulus package were extended through 2017.
Conservatives say raising taxes again on the wealthy would reduce their incentive to save and invest, hurting long-term economic growth.
"Raising taxes hurts the economy, and raising taxes on upper-income individuals — whether those who work for salaries or those who save and earn capital income — always hurts the economy the most," said J.D. Foster, a fellow at the conservative Heritage Foundation. "Spite and envy are not sound bases for public policy."
Besides, Republican leaders in Congress say, one tax increase a year is more than enough.
"Let's make it clear that the president got his tax hikes on Jan. 1," House Speaker John Boehner, R-Ohio, said Friday. "This discussion about revenue, in my view, is over."
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It's the income inequality that slows economic growth. How?
Let's say there are five friends that go out to dinner once a week. Each one makes an income of $50,000 per year. The group represents a total income of $250,000. Each dinner costs $200, which they split among themselves. So, you have five guys who average $50,000 per year and each person spends $40 for dinner.
If one of these guys stops coming to dinner, the average income of the remaining group is still $50,000 and each still spends $40 per week on dinner. The restaurant used to make $200 per week from this group, but now only makes $160. But $160 is better than nothing.
Now, here's what income equality does.
Lets assume one guy makes $250,000 per year and the others make zero. The average income of the group is till $50,000 per person ($250,000 divided by 5)
The guy with all the money decides he will treat his poor friends to dinner each week, so each guy eats $40 worth of food and the restaurant continues to earn $200 from the group.
Now, let's assume the rich guy stops coming to the weekly dinner. The average income of the remaining guys is "zero", they can't afford to eat out and the restaurant looses $200 in revenues. The economy is much worse off.
If one or all of the "broke"guys stop coming to diner and only the rich guy eats out, the restaurant can expect to earn $40 from the weekly dinner--nowhere near the $200 or the $160 that would have been earned with less income inequality.
This is what has happened to the U.S since the man from "Death Valley Days" became president 30 years ago.
So let's look at something real simple:
The top 1% of individuals control 40% of the wealth, yet paid effectively 36% of the income tax.
Shouldn't they be paying 40% of the taxes?
I think what your example fails to realize is that the middle group, paying their "fair share" are being squeezed from both sides. The poor don't have money to pay more taxes from - so should we just expect the middle to shoulder more of the burden until they vanish?
So, making everyone equally poor is the solution?
No, making everyone middle class is the answer.
Yes, that worked out well for the former Soviet Union.
CA just raised it state income tax for high income people. Many have moved to AZ, NV and TX. With the loss of these taxpayers, raising the rates have done opposite of intended goal...CA is getting less tax dollars from the wealthy.
This is what will happen to the USA. Obama and company have raised rates so high that the rich are slowly renouncing their citizenship and leaving the USA.
Yawn, CONGRESS Article 1 - Section 8 is the only one who can raise taxes. Next, umm, taxes only went up on those making 450K a year, plus the payroll taxes.
We could go with the BUSH Approach.. SPEND SPEND SPEND while CUTTING Taxes and creating recessions.
Matt,
We are taxed on income not wealth..
Itsabouttime,
There was also an Obamacare tax on those making $250,000 of 3.8% which may or not be included in the percentages mentioned in the article.
Dumb dumb dumb
Evil
you are right, it did not work for the Soviet Union. It is working for the Swedes and the Germans. The Dutch and the Danes.
Kumar -- I seriously doubt that wealthy California residents affected by a modest tax increase will pack up and move to AZ and NV. It's not worth the effort, expense and readjustment in lifestyle. You're an alarmist. The tax rates quoted in the article are still well below the rates for the wealthy in the 1950s and 1960s, when the country was doing well. The country started going downhill with the election of Ronald Reagan and the beginning the Me Generation mentality.
"Conservatives say raising taxes again on the wealthy would reduce their incentive to save and invest, hurting long-term economic growth." We already know that many of the wealthy have been moving their money overseas, as I'm sure that group already knows. Their comments are disingenuous and just downright insulting to everyone's intelligence.
You can doubt all you want, but it has already happened. Several wealthy Californians have moved to states with no state income tax.
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Census Report Shows Wealthy Taxpaying Californians Leaving State in Droves
“About 100,000 more people moved away from California in 2011 than relocated to the Golden State, according to the latest report from the U.S. Census Bureau."
But what Chaing is finding as Controller is that California’s economy as measured by tax revenues is still tanking. Compared to last year, State tax collections for February shriveled by $1.2 billion or 22%.
What Washington needs to do is figure out how we can get MORE people paying taxes . Not just raising the taxes on the payers. Until we have more people with skin in the game , all we are doing is breeding a Society of takers & not makers. That is how America grew to where we were, people working. Not people laying back waiting on the Government to support them . Now on top of all that, lets let 11 million illegal Aliens decide which Party will "GIVE" them more for nothing.
Good evening Mr. Flush Lardball.
It's the other way around. The takers are the wealthy who expect lower tax rates than the middle class but all of the benefits of living in the U.S. They're the ones who expect everything for nothing.
Not much of a surprise as successful entrepreneurs are painfully aware of this. Luckily, the cost of doing business in the form of taxes is completely disregarded by them since they fully support fairness, social justice and the unicorn liberation movement. That's just one reason why Recovery Spring/Summer/Fall/Winter/Whatever keeps happening. We should raise taxes more because it makes the economy improve as we can clearly see from the 927,000,000,000 and counting new US jobs created from previous tax increases.
I'm sure that, when the economy for most of us is in the toilet and the RICH are doing better than EVER (look back at past tax rates 50's 60's 70''s when all was going gangbusters) the answer is for the Government to cut 100's of thousands of jobs......makes perfect sense.....add to the already burgeoning unemployment lines.......then cut their benefits....or just use napalm.
Since when do the millionaires get to figure their corporate and inheritance taxes in with their personal income tax? How about us poor people adding in our sales taxes and property taxes? That report is the biggest bunch of bovine excretions I have ever heard. Give me those individual numbers and let me shake them around and see what I can come up with.
The sad part is you are one of the many people who whine about reports that don't say what you want them to say. If you want to add in the sales and real estate taxes that poor people pay, well the wealthy spend a lot more and pay ridiculously high real estate taxes.
So you are wrong again. Those million dollar houses pay obscene real estate taxes. Which is ironic because those are state taxes to pay for children's education when they usually send their kids to private school. And since they are above the threshold they are not able to take the tuition tax credits that so many take.
The article was secretly written by Carl Rove.......oink, oink....squeeeeaaaalllll.
ALL of us know that the deck is stacked against the poor and the eroding middle class. The spirit of The Law of Reciprocity (The Golden Rule) says we have to fix that, but the rich and powerful- at least some of the rich and powerful- basically want things to stay the way they are and when you speak truth to power- power wins 99%of the time. That is, until the people finally wake up and say- no more.
It seems that, as usual, Obama has been less than honest with the American people.
We need to get the rich to pay more.
How about we go for the 'grand bargain'? Lets throw out the whole tax code - all 10 thousand or however many pages, and start over again. Lets set a few restrictions. Taxes can't be used to favor or hinder any kind of investment. Therefore, no capital gains preferential rate. No mortgage interest deduction (no deduction for renters, why should the government subsidize one kind of housing over another...?). No cap on Social Security tax (do any high-income people ever turn down Social Security when they're 62 or 70?). In other words, let's set the tax code to raising revenue for the government's necessary operations only, and get the tax code out of the 'business' of social engineering, economic shaping, investment steering, and political crony rewarding. Let the government figure out some way other than 'tax expenditures' to do its favors for those who gain the ear of Congress by campaign contributions, K-street lobbyist efforts, national 'grass roots' organizations and so forth. Now, since we've wiped out all the tax breaks and tax favoritism, the tax code is truly fair. Since this is the case, let's make the rates a little progressive while making sure -everyone- pays something. Given all this, take a look at the total revenue raised, set it at about 80% of what our current total budget is, and freeze it indexed for inflation. The other 20% to get to an actual balanced, expenditure-equals-revenue, budget comes from cuts. Cuts from those programs our elected representatives can agree on. The rest of it is given back to the people up front, by reducing the tier of rates to just enough percentages to raise that 80% of current total expenditure. So -everyone's- tax rates go down, -everyone- has a fair amount of 'skin in the game' and -everyone's- economic, social, financial, and investment decisions are made on the merits of the actual decision for them personally, and not based or influenced or warped or diverted by the tax consequences. Government won't be steering the economic decisions, they can be made solely on the economic merits. While this is too radical by far to every happen, different pieces of it make up the conservative, libertarian, and progressive agendas. I say we please them all, make it all happen. The people as a whole will all win because we will have a more fair and flatter tax, less government intrusion in the economy, everyone will be paying some taxes, no 'takers', and the economy will be unfettered by the lower rates.
George Carlin was a great and wise man...hell, I'd have voted for him if he ran for office.
Any way boys and girls, here's your homework assignment for tonight because George could say it better than anyone else. Yes, you need to watch this YouTube clip and learn a few things.
George Carlin - It's a big club and you ain't in it!
http://www.youtube.com/watch?v=i5dBZDSSky0
And just so you know, the people who refer to them selves as small business people, entrepreneurs and business executives...you know who you are...the $100K to the low millions income bracket...you're not a member of the club either. You just think you are!
Wow - A MSNBC article about the already fair tax share that the largest earners in our nation contribute that actually is fact-based. How did this ever get past the liberal censor's office of our dear leader? Seriously, we still have work to do on our tax code; simplifying it, making everyone have some skin in the tax game (no American should ever have a zero or negative federal tax rate), and leveling out the rate inequity between ordinary income earned by your own hard work, versus passive investment earnings. But still, it was a refreshing change to actually see an NBC article with a few grains of truth in it.
Maybe its because the media isn't liberal, but rather, chooses to report the facts.
Sure, and Santa and the Tooth Fairy are real. And Hollywood isn't full of bleeding heart libs either.....
BWAHAHAHAHAHAHAHAHAHAHAHA!! That's the funniest thing I read since some other idiot poster once said that Hollywood supported Republicans more than the Democrats.
But I do have to admit, this post is even more moronic.
Wow. What a crock of $hit. So the tax rate for the rich is the highest it's been in 30 years. Those poor babies!! All the way up to 35%...maybe even 39.5%!
You know what it was in the 50's and 60's? Close to 70%. But of course no mention is made of that. Because you see, in spite of that rate, the rich did quite well for themselves. In spite of that rate they continued to get richer and richer. And they weren't sitting around crying in their champagne like they are now.
So can we please cut the crap the rich and their Republican employees in congress have been spewing all over the place about how the rich are the new unfortunate and downtrodden.
Right this moment, in the middle of a rotten economy, where the middle class has just about been wiped out and the poor are getting ready to be even poorer, the rich are increasing their wealth more and more. There were 200 more billionaires created in this country in just the last year. And in case you haven't noticed, the stock market is heading for a new high.
If today's rich were forced to pay the same tax rates they did in the 50's and 60's our fiscal problems would be well on their way to being solved.
I remember when people in this nation used to aspire to working hard and becoming financially successful, now it seems those that haven't been as successful as others can only spew jealous comments about how unfair it is that they aren't paying for everything. I don't care what our misguided leaders did 50 years ago. Fact is you and DC are not entitled to any more than the current 40% top effective rate. Whether someone makes $1 or $100M, no one is entitled to 50%, 60%, 70%, etc. Period.
This is the kind of stupid voter that put Obama back in office. His class warfare and "war on success" brainwashing worked.
Our government would barely function for a few weeks, even if you taxed the rich at 100%, we still wouldn't even be scratching the surface of our spiraling-out-of-control debt and spending, and yet, you've got ignorant and the envious posters like this, screaming how the people who pay by far the most in taxes should have to pay even more to make it their "fair share" while we're getting closer and closer to the country having a majority of people who pay ZERO in federal income tax. Yeah, that's "fair."
I think most people want to work. There just aren't enough jobs for the amount of people of working age. When there were more jobs available more people worked.
Right, because getting the very slight benefit of taxing the rich more is going to force our government to spend more wisely and become more fiscally responsible...
...oh, wait...
That's right, we keep forgetting that taxing the rich at 100% still wouldn't make the tiniest dent in our debt, but hey, it makes for great campaign speeches and class warfare!
Yeah, I guess cutting spending is completely out of the question.
Now, if we cut spending, who is going to pay for all those free cell phones? Seriously, you hit the nail on the head, Jax. Regardless of how much they increase taxes, those clowns in DC will only spend it. You don't buy more crack for a crackhead and not expect them to smoke it.
This article is horse @!$%#. I was paying 36% and only made $36000/year IN 1995.
We are NOT raising taxes.
We are sealing the holes in the bank vault that the rich keep reaching into and stealing money.
If nothing else, con-gress critters [opposite of pro-gress] move the money to the other side of the vault.
Equality for ALL - use a Federal Sales Tax at say 18%
Loaf of bread - that will $0.18 tax
McMansion in LA - for 10mil that will be $1,800,000 tax
NO EXCEPTIONS except for a "welfare card"
If you are below say $20,000/yr no tax,
then scaled up from there to the full 18% at $100,000/yr
Listen to the "protect the wealthy" crowd. Those low informed GOP base people somehow think that they, the low informed suckers, will be elevated into the top 2% bracket by the 2%.
News flash for you, they wouldn't give you guys the sweat off of their testices if you need it. They don't mingle with commoner's like you are, they don't marry into commoner's family's, they just use you commoners as go fers.
And the low informed can't realize they are being played. Read some of the above posted comments from them, and read the ones that will follow this. It proves my point, they are being used, and don't realize it. Must really suck to be a low informed GOPer base type person.
Not that it takes more than one working brain cell to win an argument with drooling idiot liberals (redundant, I know) like SallyAnn, but you can always tell you've won an argument with someone when they don't discuss the topic at hand nor refute any of your points, they just throw out a lot of deflection and name-calling.
Go on SallyAnn, explain to us how taxing the rich even more is going to put even the smallest dent in our out-of-control debt. We'll wait patiently.
"This discussion, in my view, is over." Too bad it isn't over in the eyes of the vast majority of the American people.
Yeah... so they have been paying lower effective tax rates than the rest of us for years and even with the expiration of some of their tax breaks, they will stay pay lower effective tax rates than most of us. Am I supposed to feel sorry for them?
They are still not paying enough. It needs to go back to the level it was in the 1950's.