The 1% of Americans with the highest incomes pay an average federal tax rate of 33%. Meanwhile, the bottom 20% of households pay an average of 2%. In fact, once transfer payments are factored in, the bottom 20% of households pay -70% in taxes, earning $49 for ever $1 they pay in federal taxation. Bloomberg’s Michael R. Strain reports:
Contrary to the narrative that seems to be forming on the political left, the U.S. federal tax code is very progressive. According to the nonpartisan Congressional Budget Office, the lowest-income 20% of households have an average federal tax rate of about 2%. Those in the middle 20% pay 14% of their income in federal taxes. Higher-income households face higher rates. The top 20% pay a 27% federal rate. And the federal tax rate for the top 1% is 33%. These data are for 2016, the most recent year available.
This is half of the story. When assessing the progressivity of the U.S. federal system, it makes sense to look at both taxes and the means-tested transfer payments — Medicaid, food stamps and Supplemental Security Income — that those taxes fund.
If you subtract these payments from federal taxes paid, the tax rate for the top 20% of households (including the top 1%) is unchanged, as those households don’t receive means-tested benefits. The tax rate for households in the middle 20% drops considerably, from 14% to 9%. And the rate for the bottom 20% of households plummets to minus 70%. Those households receive $49 in transfer payments for every $1 they pay in federal tax.
Read more here.
Jeremy Jones, CFA
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