Tax Policy Center developed an interactive tool that analyzes the 2011 federal income tax returns of President Barack Obama, Vice President Joe Biden, Mitt Romney, and a typical middle-class married couple with children. The interactive tool displays the sources of income, taxable income, income tax liability, tax composition, and finally the effective tax rate. President Obama, Vice President Biden, and Mitt Romney all three reported income that put them in the top 5% of American households, but they ended up with very different effective tax rates. Two key factors that contributed to this difference in effective tax rates are the sources of income and the amount of deductions and exemptions.
All of President Obama’s income was taxed at the ordinary income rates, but he had deductions and exemptions amounting to 37.1% of his income, which helped reduce his effective tax rate. All of Vice President Biden’s income was taxed at ordinary income rates, and he only had deductions and exemptions amounting to 17.9% of his income, which resulted in him having the highest effective tax rate of the three. Mitt Romney had the best of both worlds with more than half of his income being taxed at preferred rates, and his deductions and exemptions amounted to 27.3% of his income. The interactive tool shows how three taxpayers in the same tax bracket can end up with very different effective tax rates.