After all the months of agonizing, will-they-or-won’t-they negotiations, the fiscal cliff deal mostly turned out to be something straightforward: A tax hike on the top 1 percent.
Thanks to the expiration of the payroll tax holiday, all Americans are going to be paying a bigger tab to the IRS this year. But as my colleague Matt O’Brien noted earlier today, the biggest increases are hitting filers with more than $ 500,000 of pre-tax income, which is roughly the threshold for making 99th percentile of American households.
In fact, it looks like the top 1 percent could end up paying more overall in federal taxes next year than at any time since at least 1979, as shown on the graph below. The country’s richest households will be paying a bit more than 36 percent of their income to Washington — higher than the most recent peak of 35.3 percent in 1995, or 35.1 percent in 1979.
This chart* shows the federal effective tax rate, which is Washington’s actual cut of your income. Effective rates matter more than marginal rates. In 1979, for instance, the top marginal tax rate was 70 percent, but it affected very little income, so the average total tax rate for the 1 percent was about half that figure.
The fiscal cliff deal may not have pleased a number of liberals. But at the very least, they can say America’s richest families will likely be taxed more than any time since Jimmy Carter was president.
*Methodology: The data through 2009 comes from the Congressional Budget Office. For 2010 through 2013, the numbers represent a blend of CBO and Tax Policy Center data, with help from TPC research associate Joseph Rosenberg. These figures give us a decent ballpark sense of what the richest 1 percent will be paying compared to years past, not a down-to-the-last-decimal-point-precise calculation. CBO data measures ETR through 2009. TPC, using its own methods, calculates ETR every year since 2004. To estimate the last four years on the chart, I used the CBO’s 2009 figure as a baseline, then added or subtracted the annual percentage point change in effective rates for the top 1 percent as calculated by the the TPC. In the absence of perfectly consistent data, Rosenberg said it would make for a “reasonable” historical comparison. Ultimately, the final average rate for 2013 was 36.1 percent. By its own calculations, the TPC calculates that the top 1 percent of households will pay an effective rate of 36.9 percent.