We retired Tax Justice Blog in April 2017. For new content on issues related to tax justice, go to www.justtaxesblog.org
Many expect that during his State of the Union address tonight, President Obama will speak of income inequality, which he has previously called the “defining issue of our time.” As our nation hopefully begins this much-needed debate, everyone should be clear about one thing that has not been used much in recent years to reduce income inequality: the tax code.
The table below shows that effective tax rates were slightly higher in 2013 for all income groups (not just the rich) than they would have been if Congress had simply extended the tax rules in effect in 2012, as Congressional Republicans had called for in the debate over the “fiscal cliff.”
For the poor and middle-class, slightly higher effective tax rates resulted from the expiration of a Social Security payroll tax cut. For the rich, higher effective tax rates resulted from the end of parts of the Bush-era tax cuts and an effective increase in the Medicare tax as a part of health care reform.
The result is that the share of total taxes paid by each income group did not change much at all. As the table below illustrates, the richest one percent of Americans paid 24 percent of the total taxes in 2013, but would have paid 23.1 percent if the 2012 tax rules had been extended as Congressional Republicans called for. The shares of total taxes paid by the bottom four fifths of Americans were almost unchanged.
These figures are taken from one of the many CTJ reports that analyzed the impacts of the “fiscal cliff” deal that allowed certain tax cuts to expire. In other reports we have demonstrated that the tax code is not particularly progressive. For example, the richest one percent of Americans paid 24 percent of the total taxes in America in 2013, which may seem like a lot until you consider that this same group also received 21.9 percent of the total income that year. The poorest fifth of Americans paid only 2.1 percent of the total taxes in 2013, and received just 3.3 of the total income that year.
In other words, America’s tax system can just barely be called progressive.