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Tax Bills for the Rich Approach 30-Year High

John Boehner Taxing the Rich

By STEPHEN OHLEMACHER

WASHINGTON -- The poor rich.

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. It's middle- and low-income families that 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," said Roberton Williams, a fellow at the Tax Policy Center. "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."

The Democrats' 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's data runs 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."



(AP Photo/J. Scott Applewhite)

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IN MY OPINION ONLY

Go ahead and whine, the white house.

May 29 2013 at 11:48 PM Report abuse rate up rate down Reply
jtmpmm

Nobody cares if high income taxpayers feel abused. I feel abused because I pay a higher tax rate than mitt Romney. Ron Reagan began the downslide of the middle class by cutting taxes for the wealthy. This has continued in each admin since along with establishing special loopholes such as the onerous carried interest. The wealthy still need to pay more.

March 04 2013 at 7:25 PM Report abuse +4 rate up rate down Reply
phasejump

I luv how 27% is alot

March 04 2013 at 1:06 PM Report abuse +4 rate up rate down Reply
george

This will mean nothing to the libs. The rich are still evil, its not fair, I want stuff, NOW, I also want someone else to pay for it, I dont want a job, I love Obama,,,I can live off of his stash,,,,,get away, and let me go back to sleep,,,,,its only 11:30am.

March 04 2013 at 12:17 PM Report abuse -6 rate up rate down Reply
jspe7

Who are we kidding? With all the tax breaks the rich get, they pay NOWHERE near the posted rates. Just why do you think that the rich hire million dollar tax lawyers for----to save them 20 dollars on their taxes. It is the middle class who is paying for the "goodies" that the rich receive, like private island vacations, vacation homes, fancy expensive autos, 1,000 dollar lunches and on and on
Funny, isn't it, that not ONE of these "overtaxed" millionaires has ever wanted to trade places with me, or anyone else

March 04 2013 at 11:16 AM Report abuse +3 rate up rate down Reply
2 replies to jspe7's comment
Leonid

Typical lib does want admit thr fact. That came statstics release by IRS

March 04 2013 at 12:11 PM Report abuse -8 rate up rate down Reply
Charlie

Hey why would any of them want to trade places with a tard who sponges off others. They took risks and spent money to make money, what have you invested from your McDonalds paycheck?

March 04 2013 at 12:17 PM Report abuse -5 rate up rate down Reply
1 reply to Charlie's comment
seattlewkr

"They took risks" with their insider information, and their gifts and inheritances?

Who's sponging off whom? There's is a little luck and windfall involved here. Most of the country's wealthy individuals are not self-made wealthy.

March 04 2013 at 4:13 PM Report abuse +10 rate up rate down
bchrist751

The current tax code with is income brackets, deductions and itemization needs to be replaced with a simple Flat national sales tax....

March 04 2013 at 9:58 AM Report abuse -2 rate up rate down Reply
RED SKULL

For those 1 per-centers and “corporate citizens” out there all I have to say is I blame you. If you hadn’t been engineering a plan to take over this country this shift would have been an adjustment not a collapse. But it is also you who will suffer just as much as the rest of us – if not more.

During the 1950s when the wealthiest 1 percent paid 90% tax we were the richest most vibarant economy in the world. It may sound unfair to take home only 10 percent of what you gross. Anyone would agree with that which is how this has changed. However it’s better to get 10 percent of 10,000,000 than to get 85-90% of 100,000. When you take money out of the economy by holding it (those few wealthy one percenters) it can’t circulate and it stays in pocket. But funny thing is when you circulate that money it not only gathers like a snowball going down a giant mountain to return bigger and healthier than before, it allows the entire world to be more productive, creative and forward thinking. We could be using our energy to solve the REAL problems that face our world like GLOBAL WARMING and HUNGER instead of putting 75% of the people into a position where they are just surviving and unable to thrive.

March 04 2013 at 9:50 AM Report abuse +8 rate up rate down Reply