Saturday, July 05, 2008

Middle-Income Tax Burden: Lowest Level in Decades

WASHINGTON, D.C. Recently released Congressional Budget Office (CBO) data show that the total effective federal tax rate (including income, payroll, and excise taxes) of the middle fifth of households declined after 2001 to its lowest levels since at least 1979 (see chart above). 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.

In 2005, the CBO data indicate that in the middle fifth, the total effective tax rate was 14.2%, while the effective individual income tax rate was 3%. 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 effective tax burden on middle income taxpayers to the lowest levels since at least the late 1970s. 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.

Note: Most households do not remain in a specific quintile for extended periods of time.


At 7/05/2008 4:13 PM, Anonymous Anonymous said...

All income quintiles have lower effective federal tax rates since 1979. What's the point?

At 7/05/2008 4:39 PM, Anonymous Anonymous said...

Let's look at this from a different angle. Since your graph starts there, let's choose the year 1980.

The national debt increased from $910 billion to $9.5 trillion from 1980 to 2008. At the same time, for those who like comparisons to the GDP, the national debt increased from 26.1% to about 38% of the GDP (Source: on pages 130 and 131). It appears the decrease in effective tax rates was financed by a cash advance on the good ole government debt credit card.

Of course everyone likes lower taxe rates, but who is going to pay the bill when it comes due?

At 7/05/2008 4:45 PM, Blogger B D Humbert said...

But to what extent is the lower tax burden at the Federal level being offset by higher state and local taxes - I would love to see good data on "real" after tax income - and trends in the same...

At 7/05/2008 5:13 PM, Anonymous Anonymous said...

"real" after tax income - and trends in the same...

Click here for a starting point and another one is here. Keep googling and report your findings.

At 7/05/2008 5:15 PM, Anonymous Anonymous said...


Have you heard of the simplified tax code? It's only two lines long:

1) How much did you make last year $________?

2) Taxes Due (enter line 1) $______

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At 7/06/2008 10:10 AM, Blogger juandos said...

walt g asks the very pertinent question: "Of course everyone likes lower taxe rates, but who is going to pay the bill when it comes due?"...

Well walt g how about those who want all those entitlements the federal government has foisted off onto the American taxpayer?

You know all those things the federal government does that aren't specifically in Article. I. - Section. 8 of the Constitution...

Taxpayers' bill leaps by trillions

The federal government's long-term financial obligations grew by $2.5 trillion last year, a reflection of the mushrooming cost of Medicare and Social Security benefits as more baby boomers reach retirement.
That's double the red ink of a year earlier.

Taxpayers are on the hook for a record $57.3 trillion in federal liabilities to cover the lifetime benefits of everyone eligible for Medicare, Social Security and other government programs, a USA TODAY analysis found. That's nearly $500,000 per household.

When obligations of state and local governments are added, the total rises to $61.7 trillion, or $531,472 per household. That is more than four times what Americans owe in personal debt such as mortgages. (there is more)

At 7/07/2008 5:28 PM, Blogger OBloodyHell said...

> At the same time, for those who like comparisons to the GDP, the national debt increased from 26.1% to about 38% of the GDP

...And Americans as a whole are far, far richer than in decades past.

So by the same argument as is commonly used for the "soak the rich" scheme of graduated income taxes, we should all be ready to pay for more government, right?

No? Something wrong there?

So apparently, it really isn't "Hey, they can afford it!" (because we can), but "Don't tax you, don't tax me, tax that guy behind the tree!" after all?

If you argue for jacking the taxes of the rich, then you need to be ready to get your own taxes jacked by just as much, proportionally -- at the least.

At 7/11/2008 10:58 AM, Anonymous Anonymous said...

For those of you interested here is the link showing the percentage of income earned by each group.

Basically the top 1% earned 21.2% of the available income and the bottom 50% earned 12.8% of the available income (available income is a pretty fuzzy term I admit). The bottom 1% consists of taxpayers making approximately 30K and below and the top consists of taxpayers making 364K or more.

So the way it works out I guess on average is that 3% of 30K is about 900 in taxes and 40% of 364K is about 145,000 in taxes. So if I make 30,000 I get to keep 29,100 of that from the Feds, and if I make 364,000 I get to keep a little over 200,000 from the Feds. Of course there are people in the bottom group who made a lot less and people in the top group who made a lot more. The system is set up to be progressive so those making more pay more and those making less pay less. I suppose everyone could pay the same rate regardless of income, but then it wouldn't be a progressive system. As to whether that's fair or not, I will let those with the strong political views decide.


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