The Congressional Budget Office (CBO) is out with a report today on the distribution of federal taxes and it shows how low-income Americans were hurt by last year's fiscal cliff deal.
In 2010, the top 1% paid the highest average rate in 2010 at 29.4% and the top quintile paid at a rate of 24%. On the other side, the bottom 20% paid just a 1.5% of their income in federal taxes.
None of this is surprising. This is how a progressive tax system works. What's interesting is the CBO's estimates for average tax rates for each quintile this year compared with their average rate in 2010.
Here's the important table:
Look which group had the largest increase in their average tax rate? The lowest 20% of earners.
The top one percent took the biggest hit because the top marginal tax rate returned to 39.6% from 35% and new taxes from the Affordable Care Act kicked in. The top percentile's average rate increased a whopping 4.2 percentage points
But the remaining high income earners (the 91st to 99th percentiles) saw their average tax rate barely change at all. Instead, it was the bottom quintile of Americans who saw their average tax rate rise by 1.6 percentage points. That's more than the increase in the average tax rate of the top quintile even including the huge tax hike on the top one percent.
This is largely the result of the expiration of the payroll tax holiday which was not extended last year. Since payroll taxes are capped at $113,000, the tax burden is greater on low-income households than high income ones. The White House was so focused on making sure that it raised rates on the top one percent that it paid little attention to the increase in the payroll tax. In the end, it was the poor who lost.