2010 Average Tax Rates Slides

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2010 Average Tax Rates Slides

  1. 1. AVERAGE FEDERAL TAX RATES, 2007 (Percent) 30 25 20 15 10 5 0 Lowest Quintile Second Quintile Middle Quintile Fourth Quintile Highest QuintileThe federal tax system is progressive--that is, average tax rates generally rise with income. Households in the bottom fth of theincome distribution (with average income of $18,400, under a broad de nition of income) paid 4.0 percent of their income in federaltaxes. The middle quintile, with average income of $64,500, paid 14.3 percent of that income in taxes, and the highest quintile, with C ONGRESSIONALaverage income of $264,700, paid 25.1 percent. B UDGET O FFICE
  2. 2. SHARE OF TOTAL BEFORE-TAX INCOME AND TOTALFEDERAL TAX LIABILITIES, 2007 (Percent) 70 60 50 40 30 Share of Pretax Income Share of Taxes Paid 20 10 0 Lowest Quintile Second Quintile Middle Quintile Fourth Quintile Highest QuintileHigher-income groups earn a disproportionate share of pretax income and pay a disproportionate share of federal taxes. In 2007, thehighest quintile earned 55.9 percent of pretax income and paid 68.9 percent of federal taxes. In all other quintiles, the share of federaltaxes was less than the income share. The bottom quintile earned 4.0 percent of income and paid 0.8 percent of taxes, and the middle C ONGRESSIONALquintile earned 13.1 percent of income and paid 9.2 percent of taxes. B UDGET O FFICE
  3. 3. AVERAGE FEDERAL TAX RATES BY INCOME QUINTILEAND TAX SOURCE, 2007 (Percent) 15 10 5 0 -5 Indicidual Income Tax Corportae Income Tax Social Insurance Taxes Excise Taxes -10 Lowest Second Middle Fourth Highest All Quintile Quintile Quintile Quintile Quintile HouseholdsMuch of the progressivity of the federal tax system derives from the individual income tax, which features average rates that riserapidly with income. Social Insurance tax rates rise gradually across most of the income distribution, falling for the top quintile. Amongthe di erent types of taxes, social Insurance taxes pose the greatest liability for all quintiles except the highest, for which the individual C ONGRESSIONALincome tax is larger. The impact of the corporate income tax rises with income, while the e ect of excise taxes falls. B UDGET O FFICE
  4. 4. AVERAGE FEDERAL TAX RATES BY HOUSEHOLDTYPE AND TAX SOURCE, 2007 (Percent) 30 Indicidual Income Tax Social Insurance Taxes Corportae Income Tax Excise Taxes 25 20 15 10 5 0 Households Elderly Childless Nonelderly Childless All Households with Children Households HouseholdsAverage tax rates vary among di erent types of households, because of di erences in household income as well as tax rules. Theelderly stand out, facing much lower payroll tax burdens than other types of households because wage income is a much smaller partof their household income. C ONGRESSIONAL B UDGET O FFICE
  5. 5. CUMULATIVE CHANGE IN REAL AFTER-TAX AVERAGE INCOME (Index, 1979 = 1) 4.0 3.5 3.0 2.5 2.0 Top 1 Percent 1.5 1.0 0.5 Percentiles 0-60 Percentiles 61-80 Percentiles 81-95 Percentiles 96-99 0 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007Growth in after-tax income has been uneven across the income distribution, with upper-income groups seeing more rapid growth thanlower-income groups. Much of that increase re ects the pattern of before-tax income growth. C ONGRESSIONAL B UDGET O FFICE
  6. 6. AVERAGE FEDERAL TAX RATE BY INCOME QUINTILE, 1979-2007 (Percent) 30 Highest Quintile 25 All Households Fourth Quintile 20 Middle Quintile 15 Second Quintile 10 Lowest Quintile 5 0 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007The pattern of average tax rates has varied over time. The lowest three income quintiles have seen steady declines in their average rate.The tax rate on the fourth quintile was at over most of this period, before declining in the early part of this decade. The tax rate on thetop quintile has uctuated more, with periods of increases and decreases. C ONGRESSIONAL B UDGET O FFICE

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