One of the guiding principles of contemporary tax policy in the US is the notion that Americans are terribly overtaxed. Both candidates are running on not raising taxes for the middle classes and Mitt Romney wants to not only make the George W. Bush tax cuts permanent, he wants to cut income tax rates another 20 per cent across the board.
Yet, data from the non-partisan Congressional Budget Office reveal that, when it comes to federal taxation, US households are less taxed now than 30 years ago, and that is not just a function of the recession. The CBO data began in 1979 when the typical, or median, household paid 19 per cent of their income in federal taxes. In 2009, that share had fallen to 11 per cent.
Both economic and policy changes account for the decline in “effective tax rates”. In recessions, progressive tax systems provide automatic tax cuts as declining incomes push households into lower tax brackets. Middle-income households lost an average $6,000 in market-based income, an 11 per cent decline, between 2007 and 2009, but their federal tax bill fell $2,300, or 24 per cent. Thus their effective tax rate fell from 14 per cent to 11 per cent.