Tax Rates
Both sides of the political aisle mislead voters about the tax rates paid by the richest 1% compared to the middle class. Here’s how they do it:
Republicans fail to account for the burden of social insurance taxes and excise taxes, which fall more heavily on lower-income households.
Democrats, along with most of the media, fail to account for income streams that comprise a greater share of middle-class income, such as employer-provided health insurance and untaxed Social Security and pension benefits.
Republicans, Democrats, and the media all ignore the burden of corporate income taxes, which fall more heavily on upper-income households.
So what are the actual tax rates?
The Congressional Budget Office (CBO), the U.S. Treasury, and the Tax Policy Center have all estimated that middle-income households pay an average effective federal tax rate of about 15%, as compared to roughly 30% for the richest 1%.
Unlike the disparate rates cited by politicians, journalists, and “fact checkers,” the figures from CBO account for nearly all forms of income and all federal taxes, including hidden taxes.
They also account for tax loopholes (aka, preferences) and reflect actual taxes paid, not marginal rates.
Due to the media and politicians, the public has become widely misinformed about this issue.
A national scientific survey commissioned by Just Facts in 2019 found that about 79% of voters believe middle-income earners pay a higher average federal tax rate than the upper 1%. This includes 93% of Democratic voters, 65% of Republican voters, and 79% of third-party voters.
How about state and local taxes?
Just Facts has yet to find a reliable analysis of the distribution of these taxes.
Media outlets often cite figures from an organization called the Institute on Taxation and Economic Policy, which uses the same flawed methodology as Democrats.
In contrast, CBO doesn’t include state and local taxes in its analysis of tax rates “because of the complexity” of estimating them for individual households.
The chart below shows the average effective federal tax rates for various income groups in 2022. This is the latest available year of data from CBO, which typically takes 3–4 years to estimate these figures.
