White House Overstates Middle Class Tax Rate, Fails to Mention Payroll Tax Holiday

April 13, 2012

Scott Hodge recently commented on how the White House has used the chart below to bolster their claims that high-income earners pay too little tax, when in fact it indicates the top 1 percent pay about twice what middle-income households pay.

But this data only goes through 2010, and the payroll tax holiday that’s been in place ever since means middle-income households pay even less – about 2 percentage points less. So the middle class pays not 14 percent, as the White House claims, but 12 percent, counting both payroll and individual income taxes. That’s lower than at any time since 1960.

The payroll tax holiday barely affects the average tax rate of high-income earners since social security payroll taxes apply only to wages, not investment income, of up to $110,100 this year and $106,800 last year. That means high-income earners continue to pay about the same as they did in 2010 – around 26 percent – which is more than twice the rate that middle income households pay. It is likely even higher, since high-income earners derive much of their income from investments and business profits, which are both up since 2010.

Follow William McBride on Twitter @EconoWill

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