Your Federal Income Taxes Are Lower Than You Think

Last Updated Apr 15, 2010 1:14 PM EDT

For all the anger about taxes, on this April 15, you'd think that rates had never been so high. In fact, it's the reverse. They've rarely been this low. The median income family of four, earning $75,594, will pay only 4.6 percent of its total income in federal income taxes, after taking exemptions, deductions and tax credits. Last year it was 3.5 percent.

Those are the lowest rates since 1955, the first year that this data became available. In 1981, just before the Reagan tax cut, that same, middle-income family paid an average of 11.8 percent. You can find all the numbers here, courtesy of the Center on Budget and Policy Priorities.

The high-tax legend has become so powerful that most people don't even know their taxes have been cut. In a recent New York Times/CBS poll, 24 percent of the people thought, wrongly, that President Obama raised taxes last year and 53 percent thought their taxes were the same. Only 12 percent answered, correctly, that their taxes had been cut.

The 2009 stimulus bill contained $300 billion in tax cuts for individuals and businesses, ranging from tax credits for homebuyers to credits for working people. The "Making Work Pay" credit, of up to $800 for married couples and $400 for individuals, was administered through the payroll deduction system. Instead of getting a single check, which you might have saved, you got small amounts in each pay period, maybe $6 or $15, so it's not surprising that you didn't notice the cut. But you did your duty -- you spent the money -- which is what the stimulus was all about.

Income taxes are just part of the story. For the majority of Americans, payroll taxes -- which cover Social Security and Medicare benefits -- take a much larger bite. Adding them all together, the median-income family paid 14.2 percent of their income in federal taxes in 2006 (the most recent data available). That was close to the lowest level since 1979. Most likely, total taxes in recession year 2009 were lower still.

Lately, some higher-income people have been raging at the 47 percent of households that owe no federal income taxes, as if they were free riders on the economy. First, this calculation leaves out their Social Security and Medicare taxes. Second, their taxes are low to zero because their incomes are moderate, at best-below the $35,000 to $52,000 range, with very little real increase over the past 10 years. If higher income people wanted to drop to $35,000, they too could join the lucky ducks whose incomes pass tax free. What? No takers? You'd rather be rich? What a surprise.

For the wealthy and the well-to-do (earning $151,909 and up), federal income tax rates have dropped from 19.1 percent in 1981 to 12.6 percent today, in an era when their incomes soared. The well-off pay the bulk of the taxes because they earn most of the money. That's a bargain most people would be grateful for.

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