9/20/2012

The average tax rate for the top 1% rose during Obama's first year in office at the same time that their after-tax incomes plummeted

Average Federal Tax Rates, 1979 to 2009 By Income Group    



You might have heard about incomes falling during the recession.  Well, the people who experienced the biggest drops were those at the top incomes, and the drop was pretty brutal.  After-tax income for the top 1 percent fell from $1,120,500 in 2008 to $866,700 in 2009 -- a 23 percent drop.  It had already fallen from $1,373,700 in 2007, so from that point there was a 37 percent drop.  Yet, despite this big drop in income, they also were the only ones who faced an increase in their average Federal tax rate.  Of course, Obama raised marginal tax rates for the lower income groups, even as he lowered their average tax rates.

The after-tax income for the highest income 20%, fell by 9%.

By contrast (see Table 3), after tax income rose slightly for the bottom 20% of households and fell slightly for the second and third quintiles.  The income for the 3rd quintile fell by 0.25% between 2008 and 2009.

Some hard numbers from the report regarding the first figure above.
For the lowest income group, the average rate fell from 7.5 percent in 1979 to 1.0 percent in 2009. Almost two- thirds of that decline came between 2007 and 2009, largely as a result of new refund- able tax credits, as discussed earlier. Declines in earlier years were mainly caused by increases in the earned income tax credit, especially in the 1990s. Payroll tax rates rose steadily for the lowest income group, offsetting some of the decline in their individual income tax rates.
Households in the middle three income quintiles saw their average tax rate fall by 7.1 percentage points over 30 years, from 19.1 percent in 1979 to 12.0 percent in 2009. That decline was due primarily to declines in individual income taxes. The average tax rate for that group fell somewhat in the early 1980s and then fluctuated within a fairly narrow band through the 1980s and 1990s. Between 2000 and 2003, the rate declined by 3.1 percentage points, reflecting numerous changes in law enacted in 2001—such as the expansion of the child tax credit, reductions in tax rates, and increases in the standard deduction for married couples—that lessened taxes for households in the middle quintiles. The average tax rate on the middle quintiles then rose slightly over the 2003–2007 period, before falling 2.8 percentage points from 2007 to 2009. 
The average tax rate for households in the 81st to 99th percentiles of the income distri- bution also reached a low point in 2009, about 4 percentage points below its 1979 level. That rate fell in the early 1980s and then crept up over the remaining part of that decade and the 1990s, so in 2000 it slightly exceeded its 1979 level. The average tax rate for that group fell 2.9 percentage points between 2000 and 2003, crept up from 2003 to 2007, and then fell another 1.7 percentage points from 2007 to 2009.

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