The average tax rates for America's middle-income and rich households

THE Obama administration is stumping hard for a change in tax policy it calls the Buffett rule, after billionaire investor Warren Buffett, who points out the unfairness of tax code in which he pays a lower average tax rate than his secretary. According to the president's National Economic Council, the average tax rate paid by households with income between $1m and $10m in 2009 was just over 25% (see chart at bottom right). Average rates actually fell at higher incomes; households earning more than $100m in a year pay just 20% in tax on average—not much more than households earning between $100,000 and $250,000. The very rich typically pay lower rates because much of their income is derived from the return on capital (as opposed to wages), and capital income is taxed at lower rates. Using the income distribution in 2005, and adjusting for wage inflation, tax rates at the very top of the income spectrum have fallen from over 50% in 1960 to under 30% now (see chart at bottom left). The Buffett rule stipulates that households earning over $1m a year would face a minimum total tax rate of 30% of income. Critics of the proposal point out that this, too, is unfair in a way. The top 1% of earners already pay more than a quarter of total federal taxes and about 40% of federal income taxes.