Study: ‘Fiscal cliff’ deal made tax code slightly more progressive

The “fiscal cliff” deal signed into law early this year allowed tax rates on annual family income over $450,000 to rise, and brought the top individual rate from 35 percent to 39.6 percent.

{mosads}Starting this year, top earners also faced new taxes on investment income to help pay for the Democrats’ healthcare law, and under reinstated reductions on personal exemptions and itemized deductions known as the personal exemption phaseout (PEP) and Pease.

The payroll tax holiday, which was in place for 2011 and 2012, expired at the end of last year as well, a change that generally had a greater impact on middle-class workers.

In its study, CTJ also makes the case that the tax code is not overly progressive right now.

The group found that the lowest 20 percent of earners – those making under $21,000 a year – will pay 2.1 percent of total taxes this year while making 3.3 percent of the total income. The bottom quintile will also pay 18.8 percent of their income in taxes, according to CTJ.

Taxpayers making between $186,000 and $478,000, on the other hand, will pay 15.3 percent of taxes on 14.3 percent of the total income. Roughly a third of the group’s income will go toward their own taxes.

Some Republicans and business groups have argued that the current U.S. tax code is very progressive.

In a paper released Wednesday, the U.S. Chamber of Commerce said America’s system is one of the more progressive among countries in the Organization for Economic Cooperation and Development.

The Chamber also noted that the top 1 percent of earners paid more than a third of income taxes in 2010, while accounting for around a fifth of the nation’s income.

But CTJ called the federal income tax the most progressive part of the U.S. system, and suggested that considering state and local taxes gave a better snapshot of how progressive they system is.

Mitt Romney, the GOP nominee for president last year, found some trouble after he was taped saying that the roughly 47 percent of people in the United States who don’t owe federal income taxes were certain to vote for President Obama.

Around two-thirds of those who don’t owe income taxes do pay the payroll tax, the Tax Policy Center says.