Thursday, January 3, 2013

Effective Federal Tax Rates Under the New Law

Here are the effective federal tax rates (total taxes as a percentage of income) for 2013 under the new tax law, as estimated by the Tax Policy Center, for various income groups:

Bottom fifth: 1.9
Second fifth: 9.5
Middle fifth: 15.6
Fourth fifth: 19.0
Top fifth: 28.1

80-90 percentile: 21.5
90-95 percentile: 23.4
95-99 percentile: 26.3
Top 1 percent: 36.9

Top 0.1 percent: 39.6

And, an important point that shouldn't be lost in the analysis, is a point made by Peter Schiff. In high tax states, such as New York and California, the largest income earners are paying more than 50% in income taxes, when federal, state and local taxes are considered
In light of the extensions of the popular middle class tax rates, the loudly trumpeted tax increases on those individuals making more than $400,000 (and couples making more than $450,000) will not be enough to translate into higher tax revenues. Instead they will result in perhaps $60 billion per year in new revenue to the Federal government that will be more than offset by the new spending announced in the agreement.  However, the increases will result in many individuals in high tax states like California and New York paying more than 50% of their income in taxes.

(HT  Greg Mankiw, Andrew Schiff))


  1. Years ago (back in I think the Reagan days) there was a study that showed that when the top rates exceed 51%, cheating becomes rampant. Not sure if it was state and federal combined or only federal. Apparently, once you get beyond 51% it becomes worth the risk to cheat. Not sure how you can do that in this day-in-age but given that the public is much smarter than the government bureaucrats, they'll figure out a way.

  2. Im not spending money on a stick of gum! Fu*k you Obama!