Federal effective tax rates (taxes as a percentage of income)

The CBO tracks “…federal effective tax rates (taxes as a percentage of income) across household income groups for the four largest sources of federal revenues–individual income taxes, social insurance (payroll) taxes, corporate income taxes, and excise taxes–as well as the total effective rate for the four taxes combined.” (Hat tip to George Mason University’s David Henderson).  The following link from CBO’s website slices and dices these data in all sorts of different directions: http://www.cbo.gov/publications/collections/taxdistribution.cfm.

Professor Henderson provides the following summary:

  • The bottom quintile paid 4.3 percent of income in taxes,
  • The top quintile paid 25.8 percent of income in taxes,
  • The top decile paid 27.5 percent of income in taxes,
  • The top 5 percent paid 29.0 percent of income in taxes, and
  • The top 1 percent paid 31.2 percent of income in taxes.

One important takeaway here is that while Social Security (i.e., the so-called “payroll” tax) “…reduces the “progressivity” of the tax system, (it) does not come close to reversing it”; federal effective tax rates are clearly quite progressive indeed!  Professor Henderson also parses some other interesting insights from these data – his blog post about this topic is well worth reading!

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