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Effective Federal Tax Rates: 1979-2001 1 (April 2004)

handle is hein.congrec/cbo0784 and id is 1 raw text is: Effective Federal Tax Rates: 1979-2001 Effective Federal Tax Rates: 1979-2001 April 2004 Updating the series of historical effective tax rates estimated by the Congressional Budget Office (CBO) and presented in a recent paper, Effective Federal Tax Rates, 1997 to 2000, (1) the following tables provide values for an additional year--2001. The tables show effective lax rates for the four largest sources of federal revenues--individual income taxes, corporate income taxes, payroll taxes, and excise taxes--as well as the total effective rate for the four taxes combined. The tables also present average pretax and after-tax household income; counts of households; and shares of taxes, income, and households for each fifth (quintile) of the income distribution and the top percentiles of households. Who Pays Taxes In the analysis, households were assumed to bear the burden of the taxes that they pay directly (for example, individual income and payroll taxes). Excise taxes were assumed to be borne by households according to their consumption of taxed goods (tobacco and alcohol) or--in the case of excise taxes that affect intermediate goods--in proportion to overall consumption. Taxes on businesses were attributed to households. CBO assumed, as do most economists, that employers' shares of payroll taxes fall on employees and therefore that the amount of those taxes should be included in employees' income and the taxes counted as part of employees' tax burden. Corporate income taxes were assumed to be borne by owners of capital. CBO allocated corporate tax liabilities to households in proportion to their income from interest, dividends, rents, and capital gains. Measuring Income This analysis is based on adjusted pretax comprehensive household income. That measure includes all cash income (both taxable and tax-exempt), taxes paid by businesses (which are imputed to individuals on the basis of assumptions about incidence), employee contributions to 401 (k) retirement plans, and the value of income received in kind from various sources (including employer-paid health insurance premiums, Medicaie and Medicaid benefits, and food stamps, among others). The tables use the Census Bureau's fungible value measure to determine the cash equivalent of in-kind government transfers. CBO adjusted the resulting measure of comprehensive income for differences in the size of households in order to assign households to income quintiles. It used adjusted income only to rank households in the income distribution; values in Tables 1C, 2C, 3C, and 4CA for average income are based on income unadjusted for household size. Income Quintiles The tables report values for both the entire population and for parts of the income distribution. Quintiles form the basic groups of interest. The tables also include information about households in the top 10 percent, top 5 percent, and top 1 percent of the income distribution. The analysis does not show a comparable subdivision of the lowest quintile because effective tax rates and income are distributed in similar ways for households in different parts of that income group. Page I of 29

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