CBO Shows Top 40% Pay More Than 100% of Taxes

Published December 17, 2013

The Congressional Budget Office has published a study, The Distribution of Household Income and Federal Taxes, 2010, which shows the top 40 percent of income earners paid 106.2 percent of total federal income taxes, while the bottom 40 percent paid -9.1 percent. This isn’t the study’s headline, so you have to dig a bit to get that information, but look at Table 3 on page 13 of the study to find that information.

The Table shows the top 20 percent of income earners paid 92.9 percent of total income taxes in 2010 (the latest year available), and the next-highest 20 percent paid 13.3 percent of total income taxes, so the top 40 percent paid 106.2 percent.

Refundable Credits = Negative Tax Liability

Because of refundable tax credits like the earned income tax credit and the child tax credit, the bottom 20 percent got more money refunded to them than they paid in taxes, so they paid -6.2 percent of total taxes. The next-lowest 20 percent paid -2.9 percent, so the bottom 40 percent paid -9.1 percent of total income taxes. More than 9 percent of total income tax payments go toward paying out money directly to people who get more back than they paid in.

Another Table in Box 1 on page 7 of that same study shows that households in the bottom 20 percent of income received an average of $22,700 in government transfers. The federal government’s official poverty threshold for a family of four in 2010 was $22,050, which was less than the average family received in government transfers. (Note that some of those transfers, such as Medicaid benefits, are not counted as income for purposes of calculating the poverty threshold.)

President Obama has frequently said the rich should pay more in taxes. That apparently means the upper 20 percent of income earners should pay more than 92.9 percent of total income taxes, and the upper 40 percent should pay more than 106.2 percent.

Rising Poverty Rates Under Obama

Meanwhile, if we are really concerned more about the poor than the rich, note that under the Obama administration the official poverty rate has risen from 12.5 percent to 15 percent of the population. Imagine the outcry if this had happened under a Republican president. The president talks as if he cares about the poor, but they have fared badly under his administration. Results should matter more than intentions.

From a policy standpoint, it appears that President Obama’s route to increased income equality isn’t to bring up the poor, but to bring down the rich.

Randall Holcombe ([email protected]) is a research fellow at The Independent Institute and DeVoe Moore Professor of Economics at Florida State University.

Internet Info

“Distribution of Household Income and Federal Taxes, 2010,” Congressional Budget Office: http://heartland.org/policy-documents/distribution-household-income-and-federal-taxes-2010