People mistakenly believe that because the rich benefit from many popular taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. deductions and credits, they pay a lower average (or “effective”) tax rate than other taxpayers. This is not the case. The average tax rateThe average tax rate is the total tax paid divided by taxable income. While marginal tax rates show the amount of tax paid on the next dollar earned, average tax rates show the overall share of income paid in taxes. for all Americans is about 10.4 percent. However, taxpayers earning over $1 million pay a 23 percent effective rate and taxpayers earning over $250,000 pay a 21 percent effective rate— more than twice the national average.
Meanwhile, “middle class” taxpayers earning between $50,000 and $100,000 pay an effective rate below the national average—just 9 percent. The effective tax rate for Americans making less than $30,000—who owe no income taxes—is actually negative due to refundable credits that give them a check back from the IRS.
For more charts like the one below, see the second edition of our chart book, Putting a Face on America's Tax Returns.
