Comparing tax rates

There’s always a public discussion going on about taxes, and the recent focus has been on how taxes have changed for households of different income levels. N.C. State University economist Mike Walden explains what the data show.

“This debate came up recently in the discussions of raising the debt limit. And what it has focused … on is whether rich people have gotten a big tax break relative to other people — who pays taxes; who doesn’t.

“What we want to focus on here is first of all only on federal income taxes. And secondly what economists say is the better measure to use is to look at the average tax rate paid by a household. That’s going to translate into federal income taxes as a percent of your income.

“Now when you look at average tax rates for the federal income tax, what you see over the last 10 years … is virtually every taxpayer has gotten a tax rate reduction.

“For example, the richest 10 percent of income earners saw their average federal income tax rate drop from 21.4 percent 10 years ago to about 18.7 percent today.

“The poorest of the taxpayers, those in the 50 percent or below range of income, they also saw a drop in their federal income tax from 4 percent to 2.5 percent.

“So, we saw these big tax rate reductions about 10 years ago. The big question is, Should everyone get them, and should they go in the opposite direction?

“I think this is something the Congress will be looking at.”