Congressional Budget Office (CBO) data show that the total effective federal tax rate of the middle fifth of households declined after 2001 to its lowest levels since at least 1979, Congressman Jim Saxton, ranking member of the Joint Economic Committee, said today. Under the 2001 and 2003 tax relief legislation, the income tax as a share of income for the middle fifth also has fallen to its lowest levels in decades (see chart above, click to enlarge).
In 2005, the CBO data indicate that in the middle fifth, the total effective tax rate -- the share of federal taxes as a percent of income -- was 14.2%, while the effective individual income tax rate was 3.0%. These figures compare to 2000 levels of 16.6% and 5.0%, respectively. Between 2003 and 2005, the total effective tax rate for the middle fifth edged up, but still remained far below the levels of the previous 24 years.
“The CBO analysis shows that the 2001 and 2003 tax cuts have lowered the tax burden on middle income taxpayers to the lowest levels since at least the late 1970s,” Saxton said. “The CBO tax figures, put into historical perspective, also show that the income tax burden of middle income households has been reduced to its lowest levels in many years,” Saxton concluded. The total effective tax rate includes income, payroll, and excise taxes. The CBO tax numbers do have limitations, and it should be recalled that most households do not remain in a specific quintile for extended periods of time.
~From the Joint Economic Committee of Congress (no link available yet)
MP: Note that the total effective tax rate on the middle-income taxpayers was above 17% during most of the 1990s, and fell below 14% in 2003, and then rose slightly to 14.2% in 2005.