Obama's Budget Would Lead to the Highest Federal Tax Rate in 4 Decades

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Screen Shot 2013-04-23 at 4.13.16 PM.pngGraph shows last three decades in effective federal tax rates (this TPC dataset only goes back through 1979) and ends with the ten-year projection of Obama's budget, in 2023, from TPC estimates. Update: As commenters below rightly note, the graph appears to show a sudden increase in taxes, which is not the case. The X axis skips a decade to end at 2023, the last year estimated by TPC. 

The Tax Policy Center has a new estimate of tax rates under President Obama's budget in the next ten years. What won't surprise you is that taxes are going up -- way, way up -- on the richest percentile. What might surprise you is that taxes are also going up on just about everybody else, too, despite the president's campaign promise to not raise taxes on families making less than $200,000.

Politico and other publications are making a lot of hay about these higher middle-class taxes, which mostly come from cigarette taxes and a new inflation measure called chained-CPI. But when you dig into the numbers, it's not really a middle-class tax "hit" so much as a very light tap.

Families making between $50,000 and $75,000 would see an average federal tax hike of $63. That's a cheap dinner for four at Applebee's. Families making between $100K-$200K would pay an extra $150 per year. That's a cheap dinner for four at the Palm. That's not not money. It's definitely money! And in the aggregate, it adds up. But, c'mon, are we really going to make a big deal about an extra $12/month in federal taxes for couples making $180,000?

The real story here is that Obama's tax plan is both aggressive and progressive. [See update under the graph above.] Total effective tax rates, which hit a 30-year low of 17% in 2009, are on track to break 24% in 2023. That would be the highest share of the U.S. economy going to Washington since the 1970s. Most of that burden would fall on families making more than $400,000 a year, who saw both a tax rate increase in January and face a tax deduction cap in the new budget.

Here's the graph of each quintile's rising effective tax rate (I'm comparing to 2007 because emergency tax credits passed to fight the recession in 2008/9 make the comparison look too stark) ...

Screen Shot 2013-04-23 at 4.43.20 PM.png

... and here's a look at rising tax rates on the highest earners.

Screen Shot 2013-04-23 at 4.43.00 PM.png

The takeaway here is fairly clear. Taxes are going up on everybody, a little. As well they should, given the growth in projected Social Security and health spending. But they're really going up on the very richest -- who are making more and more of total income, anyway.

Don't let the "middle class tax hit!" articles distract you from the big picture here, which is that Obama's tax plan is, in a nutshell: Everybody pays a little more + rich pay a lot more = modern historical high in effective federal taxes.

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Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

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