Most households now face a lower average tax burden than in any year from 1979 to the present. This was true even before the most recently enacted federal income tax cuts. The chart below reflects total federal tax burdens -- including income taxes as well as payroll and excise taxes -- for the middle fifth of families. Percentage of Income Paid in Federal Taxes by Familiesin the Middle Fifth of the Income Distribution Source: Congressional Budge Office and CBPP calculations
Most households now face a lower average tax burden than in any year from 1979 to the present. This was true even before the most recently enacted federal income tax cuts. The chart below reflects total federal tax burdens -- including income taxes as well as payroll and excise taxes -- for the middle fifth of families.
Percentage of Income Paid in Federal Taxes by Familiesin the Middle Fifth of the Income Distribution
If one looks at just income taxes, the historical data indicate that a median family of four now pay a smaller share of its income in federal income taxes than in any year since 1957. Average Federal Income Tax Rates for Median-Income Four-Person Families Source: Office of Tax Analysis (Treasury Dept.)
If one looks at just income taxes, the historical data indicate that a median family of four now pay a smaller share of its income in federal income taxes than in any year since 1957.
Average Federal Income Tax Rates for Median-Income Four-Person Families
Source: Office of Tax Analysis (Treasury Dept.)
? What is a “progressive” tax? What is a “regressive” tax?
A progressive tax is a tax based on the "ability to pay." In a progressive tax structure, the rate of taxation increases as one's income and wealth increase. For example, in a progressive tax system, a family with $200,000 in income might pay 25% of their income in taxes while a family with $50,000 in income might pay 20% of their income in taxes. A regressive tax is the opposite of a progressive tax. In a regressive tax system, those with lower incomes pay taxes at a higher rate. A proportional tax is one in which everyone pays the same rate of taxation, regardless of wealth or income. This is sometimes referred to as a "flat" tax.
A progressive tax is a tax based on the "ability to pay." In a progressive tax structure, the rate of taxation increases as one's income and wealth increase. For example, in a progressive tax system, a family with $200,000 in income might pay 25% of their income in taxes while a family with $50,000 in income might pay 20% of their income in taxes.
A regressive tax is the opposite of a progressive tax. In a regressive tax system, those with lower incomes pay taxes at a higher rate.
A proportional tax is one in which everyone pays the same rate of taxation, regardless of wealth or income. This is sometimes referred to as a "flat" tax.
It depends on which taxes you are talking about. The federal income tax is progressive. However, payroll taxes are very regressive, and most state and local taxes are also regressive. The following table shows the effective tax rates for selected taxes in 2000. Effective tax rates, 2000 Personal Income Tax Social Ins. (Payroll) Tax All Federal Taxes State and Local (1995) Population fifths First - 4.6% 8.2% 6.4 12.4% Second 1.5 9.4 13.0 10.3 Third 5.0 9.6 16.7 9.4 Fourth 8.1 10.4 20.5 8.6 Top Fifth 17.5 6.3 28.0 7.0 Top 10% 19.7 5.0 29.7 n.a. Top 5% 21.6 3.8 31.1 n.a. Top 1% 24.2 1.9 33.2 5.8 All 11.8% 7.9% 23.1 n.a. Source: Congressional Budget Office
It depends on which taxes you are talking about. The federal income tax is progressive. However, payroll taxes are very regressive, and most state and local taxes are also regressive.
The following table shows the effective tax rates for selected taxes in 2000.
Effective tax rates, 2000
Almost 80 percent of Americans now pay more in payroll taxes than they do in income taxes. Source: Congressional Budget Office
The effective Social Security tax rate drops as income rises. This is due to the fact that only the first $87,000 in earned income is taxed. The tax rate on earned income up to that amount is 6.2%. Effective Social Security Tax Rates
The effective Social Security tax rate drops as income rises. This is due to the fact that only the first $87,000 in earned income is taxed. The tax rate on earned income up to that amount is 6.2%.
Effective Social Security Tax Rates
? How do federal tax burdens vary among different income groups?
Distribution of Income and Taxes by Income Groups, 2000 Income group Average Household Income Share of pre-tax income Share of fed. income taxes Share of Payroll Taxes Share of all federal taxes Lowest 20% $14,600 4.0% -3.7% 6.0% 1.2% Second 20% 33,300 8.6 0.8 13.3 6.6 Third 20% 50,300 13.5 6.6 19.4 12.0 Fourth 20% 74,500 19.6 14.9 26.9 19.3 Top 20% 196,500 54.8 81.4 34.3 60.8 Top 10% 286,300 40.6 68.1 19.0 47.2 Top 5% 434,300 30.7 58.0 11.2 38.4 Topy 1% 1,290,800 17.8 38.8 3.7 24.8 All $74,100 100% 100% 100% 100%
Distribution of Income and Taxes by Income Groups, 2000
Income group
Average Household Income
Share of pre-tax income
Share of fed. income taxes
Share of Payroll Taxes
Share of all federal taxes
The least wealthy 60 percent of Americans have less than 5 percent of the wealth in the U.S. but pay more than 14 percent of federal taxes.
The wealthiest 5 percent have 59% of the wealth and pay 38.4 percent of federal taxes. The wealthiest 1 percent have over 38 percent of the wealth and pay 24.8 percent of federal taxes. These households have an average wealth of $10.2 million and pay only 3.5 percent of their wealth in taxes. By way of comparison, the bottom 40 percent of taxpayers have an average net wealth of $1,100 and pay 163 percent of their net wealth in taxes. If all taxpayers paid the same 10.5 percent of their wealth in taxes as median income families pay, the taxes of the lowest 40 percent would be cut by 94 percent while the taxes of the wealthiest would triple. Source: Congressional Budget Office and United for a Fair Economy
The wealthiest 5 percent have 59% of the wealth and pay 38.4 percent of federal taxes. The wealthiest 1 percent have over 38 percent of the wealth and pay 24.8 percent of federal taxes. These households have an average wealth of $10.2 million and pay only 3.5 percent of their wealth in taxes. By way of comparison, the bottom 40 percent of taxpayers have an average net wealth of $1,100 and pay 163 percent of their net wealth in taxes.
If all taxpayers paid the same 10.5 percent of their wealth in taxes as median income families pay, the taxes of the lowest 40 percent would be cut by 94 percent while the taxes of the wealthiest would triple.
Source: Congressional Budget Office and United for a Fair Economy
The rate of taxation for the top income tax bracket decreased dramatically during the last 40 years. It fell from 91% in 1963 to 35% in 2003.
As the following chart indicates, the middle 20% of Americans are paying more taxes today than in 1977, while the top 1% are paying much less. Tax Burden Changes, 1977 - 1996 Source: Analysis of Congressional Budget Office figures by Mishel and Bernstein, The State of Working Class America, 1996-1997, p. 114.
As the following chart indicates, the middle 20% of Americans are paying more taxes today than in 1977, while the top 1% are paying much less.
Tax Burden Changes, 1977 - 1996
The benefits of these tax cuts were skewed heavily toward the wealthy, especially those at the very top. Average increase in after-tax income in 2003 from tax cuts Percent Dollars Millionaires 5.4% $112,925 Top 1% 4.6% 26,335 Middle fifth 2.6% 676 Bottom fifth 0.2% 3 Source: Tax Policy Center of the Urban Institute and Brookings Institute
The benefits of these tax cuts were skewed heavily toward the wealthy, especially those at the very top.
Average increase in after-tax income in 2003 from tax cuts
The long-term effects of these tax cuts is even more significant. As the following table illustrates, by the end of the decade the tax burdens of the richest one percent of Americans will fall by 17%. For the remaining 99 percent the average tax reduction will be 5 percent. Changes in taxes and tax shares under tax cuts of 2001, 2002, 2003 Income group % tax cut Change in share of total taxes Lowest 20% - 9% - 0.0% Second 20% - 12% - 0.2% Middle 20% - 8% +0.0% Fourth 20% - 6% + 0.5% Next 15% - 3% + 1.4% Next 4% - 3% + 0.7% Top 1% - 17% - 2.4% Addendum:All but top 1% - 5% + 2.4% Source: Institute on Taxation and Economic Policy, Citizens for Tax Justice
The long-term effects of these tax cuts is even more significant. As the following table illustrates, by the end of the decade the tax burdens of the richest one percent of Americans will fall by 17%. For the remaining 99 percent the average tax reduction will be 5 percent.
Changes in taxes and tax shares under tax cuts of 2001, 2002, 2003
Fewer than 2 percent of estates paid federal estate taxes in 1999. (Internal Revenue Service) While the top tax rate is 50 percent, the average effective rate of the estate tax is 17 percent. Source: United For a Fair Economy, citing 1999 Internal Revenue Service data.
Fewer than 2 percent of estates paid federal estate taxes in 1999. (Internal Revenue Service)
While the top tax rate is 50 percent, the average effective rate of the estate tax is 17 percent. Source: United For a Fair Economy, citing 1999 Internal Revenue Service data.
At present, the estate tax raises $30 billion a year for the federal government. That’s about 9% of the non-military discretionary budget. By 2011, the cost of the repeal will reach $60 billion a year. Total cost of full repeal would be $662 billion over first 10 years. States would lose $9 billion a year at a time of tight budgets. It's also estimated that hospitals, universities and other charities could lose $6 billion a year in charitable donations.
At present, the estate tax raises $30 billion a year for the federal government. That’s about 9% of the non-military discretionary budget. By 2011, the cost of the repeal will reach $60 billion a year.
Total cost of full repeal would be $662 billion over first 10 years. States would lose $9 billion a year at a time of tight budgets.
It's also estimated that hospitals, universities and other charities could lose $6 billion a year in charitable donations.
Percent of federal tax collections from individuals and corporations Source: Bartlett and Steele, America: Who Really Pays the Taxes?, p.140; and United for a Fair Economy.
Percent of federal tax collections from individuals and corporations
In the 1960s, corporate income taxes were roughly 3.8 percent of GDP. By 2000 they had fallen to 1.2 percent of GDP.
? In Minnesota how does the rate of taxation paid by people making over $845,000 compare with the rate of taxation paid by those making less than $27,000 per year?
When all state and local taxes are considered, Minnesotans making more than $845,000 a year will pay 7.7% of their income in taxes, while those making less than $27,000 a year will pay 11.3%. That's an effective rate nearly one and a half times higher than the top end. Minnesota -- Effective Tax Rates IncomeDecile Income Range Total State and Local Taxes First $26,638 & under 11.3% Second $26,639 - $40,674 11.9% Third $40,675 - $54,414 12.1% Fourth $54,415 - $68,074 12.1% Fifth $68,075 - $83,826 12.0% Sixth $83,827 - $108,397 11.6% Seventh $108,398 - $154,003 11.8% Eighth $154,004 - $278,003 11.9% Ninth $278,004 - $845,275 9.7% Tenth $845,276 & over 7.7% Total 11.2% Source: Minnesota Tax Incidence Study, MN Dept of Revenue, 2003
When all state and local taxes are considered, Minnesotans making more than $845,000 a year will pay 7.7% of their income in taxes, while those making less than $27,000 a year will pay 11.3%. That's an effective rate nearly one and a half times higher than the top end.
Minnesota -- Effective Tax Rates
