It's Official: The Top 40% of Income Earners Pay More Than 100% of Federal Income Taxes

By Randall Holcombe
Dec. 12, 2013

The Congressional Budget Office has just published a study, The Distribution of Household Income and Federal Taxes, 2010, which shows that the top 40% of income earners paid 106.2% of total federal income taxes, while the bottom 40% paid -9.1%. This isnít the studyís 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 that the top 20% of income earners paid 92.9% of total income taxes in 2010 (the latest year available), and the next-highest 20% paid 13.3% of total income taxes, so the top 40% paid 106.2%.

Because of refundable tax credits like the earned income tax credit and the child tax credit, the bottom 20% got more money refunded to them than they paid in taxes, so paid -6.2% of total taxes. The next-lowest 20% paid -2.9%, so the bottom 40% paid -9.1% of total income taxes. More than 9% 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% of income received an average of $22,700 in government transfers. The federal governmentís 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% of income earners should pay more than 92.9% of total income taxes, and the upper 40% should pay more than 106.2%.

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% to 15% 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 Obamaís route to increased income equality isnít to bring up the poor, but to bring down the rich.

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