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Federal Income Taxes on Middle-Income Americans Near Historic Lows

Federal taxes on middle-income Americans are near historic lows, our updated report explains, and that’s true whether you’re talking about federal income taxes or all federal taxes.

When it comes to income taxes, a family of four in the exact middle of the income spectrum will pay only 5.3 percent of its 2013 income in federal income taxes next year, according to a new analysis by the Urban-Brookings Tax Policy Center.

Average income tax rates for these typical families have been lower during the Bush and Obama Administrations than at any time since the 1950s (see graph).  Taxes were particularly low from 2008 to 2010 because of the Recovery Rebate Credit and the Making Work Pay Tax Credit, which have since expired.

When it comes to overall federal taxes, households in the middle fifth of the income spectrum paid an average of 11.1 percent of their income in taxes in 2009, the latest year for which data are available, according to the Congressional Budget Office (CBO).  This is the lowest on record in data that go back to 1979.

When CBO publishes data for more recent years (such as 2013), overall federal average tax rates on this middle group will likely be higher — though still low historically — because they will reflect the expiration of Making Work Pay and other temporary tax cuts, including the payroll tax cut that expired at the end of last year.

The expiration of the payroll tax cut is the biggest tax change for most people in 2013.  As this table shows, the tax cut helped workers in a wide range of income groups, and its expiration is a key contributor to the slowdown in economic growth that CBO forecasts for 2013.

Chuck Marr
Vice President for Federal Tax Policy