Tax Lawyer's Blog

The Tax Policy Center has issued a report titled The Distribution of Federal Taxes, 2009-12 that compares the distribution of taxes under current law to the distribution under President Obama’s proposed budget:

Overall, the federal tax system is progressive. On average, households with higher incomes pay taxes that are a larger share of their income. But barring legislative action, the numerous sunsets and phase-ins that Congress has written into the tax code will result in a tax system that is in a state of flux over the next few years.

As a result, current law dictates significant changes in the degree of progressivity in the federal tax system between now and 2012.

This paper summarizes the Tax Policy Center’s latest estimates of the distribution of federal taxes for 2009 through 2012.

Here is what TPC says will happen under President Obama’s tax regime:

[T]he average ETR in 2012 would drop to 20.7 percent, significantly lower than the current law 23.4 percent. Starting from that baseline, the budget would then increase individual income taxes on upper-income households and extend several provisions—including the Making Work Pay credit—that benefit those with more modest incomes.

Those changes would yield the same 20.7 percent average ETR overall but would shift the tax burden significantly across income classes.

The average ETR for taxpayers in the top 1 percent would jump nearly 4 percentage points from 28.7 percent under the administration’s baseline to 32.4 percent. In marked contrast, the average ETR for households in the bottom fifth would decline sharply to 0.6 percent, down from 4.6 percent under the baseline.

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• Obama Floats Trial Balloon on Middle Class Tax Hikes, Balloon Bursts
• Taxing the Rich, Closing the Wealth Gap and Collectivism Revisited
• Should the Rich Pay More Taxes?

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