Tax Day Question: Who's Paying What?

The right's anti-tax crusade has been so successful that in 2010 the federal government collected a smaller share of our economic output in taxes than it had in 60 years. That's created a large deficit, which is now being used to justify cuts to popular social programs.

Taxes have decreased dramatically for most American households since Ronald Reagan came to offcie 30 years ago. But our overall level of taxation, on average, obscures who's paying how much.

So, on this tax day, let's take a look at the way federal tax rates for different income levels have changed since 1981 (using this handy calculator and adjusted for inflation to 2010 dollars).

The federal income tax bill for a person making $15,000 is 51 percent higher today than it was 30 years ago -- a big jump.

If you make $20,000, your federal income taxes have gone up only slightly. You would have paid $2,498 in 1981, and this year you would pay $2,575.

If you make $50,000, your federal income taxes would have declined by 19 percent, from $10,710 to $8,625.

If you make $100,000, you'd be paying 33 percent less today than in 1981.

Someone making a really good living that brought in $250,000 would pay 47 percent less – that person's federal income tax bill dropped from $126,953 in 1981 to $67,398 today.

If you brought in a half-million dollars, your tab would have dropped by 49.5 percent, saving you around $150,000. It's about the same decrease for someone making a cool million.

These figures only consider taxable income, and the super-wealthy avoid paying their share of taxes through a variety of loopholes that decrease their adjusted income – the amount subject to taxes. But looking just at the rate-changes, a person making $10 million would have seen his or her tax bill drop by 50.4 percent.

And what about corporate income taxes? Unlike most countries that have one flat corporate tax rate, we tax corporations progressively. Effective tax rates for all corporations have declined since 1981, but the little guys didn't do as well as the big players. The effective tax rate for the most successful 5 percent of American companies declined by 42 percent since 1981, while effective rates for all companies dropped by just 10 percent (Excel).

There's an important caveat to all this, which is that it looks at federal income taxes in isolation. The problem with that is the federal income tax is among the most progressive taxes in this country, and yet it makes up only 20 percent of the overall taxes collected. The right has long used the progressive nature of the federal income tax to argue that only the rich pay taxes, which is miles and miles from the truth.

The Congressional Budget Office found that those in the bottom 80 percent of the earnings ladder paid around 9 percent of their incomes in Social Security taxes; the top one percent paid just 1.6 percent of theirs. After the income tax, payroll taxes represent the largest share of the federal take — those dollars represent a much bigger piece of the pie than corporate income taxes or taxes on capital gains.

A 2009 study by the nonpartisan Institute on Taxation and Economic Policy looked at state and local taxes in greater detail. The researchers found that those in the top 1 percent of the heap paid around 5 percent of their incomes in state and local taxes; the next 4 percent paid about 7 percent of theirs; the middle 5th paid just over 9 percent and those at the bottom of the ladder, the poorest 20 percent of the population, forked over almost 11 percent of their incomes on average to state and local governments.

They also looked at excise taxes — taxes on gas, cigarettes, alcohol and other goodies. They found that the “average state’s consumption tax structure is equivalent to an income tax with a 7.1 percent rate for the poor, a 4.7 percent rate for the middle class, and a 0.9 percent rate for the wealthiest taxpayers.”

So the dirty secret is that we really have a flat tax. That’s the conclusion of a 2007 study by Boston University economists Laurence J. Kotlikoff and David Rapson, who found that when you add it all up — state and local taxes, federal taxes and excise fees – “The average marginal tax rate on incomes between $20,000 and $500,000 is 40.3%, the median tax rate is 41.8%, and the standard deviation of all of those rates is 5.3 percentage points. Basically, most of us pay about 40%, plus or minus 5.3 percentage points.”

Anyway, happy Tax Day. And remember that while your taxes are lower than in other advanced countries, they don't get you free or very low-cost health-care, deeply subsidized university tuition or 21st century infrastructure!

This piece was edited after publication.