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Historical Effective Federal Tax Rates: 1979 to 2005 1 (December 2007)

handle is hein.congrec/cbo0989 and id is 1 raw text is: Historical Effective Federal Tax Rates: 1979 to 2005 December 2007 The following tables update the series of historical effective tax rates estimated by the Congressional Budget Office (CBO) by providing values for an additional calendar year-2005.1 The tables show effective tax rates 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. 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 for the top percentiles of households. Effective Tax Rates in 2005 Compared with its rate in 2004, the overall effective tax rate rose by 0.4 percentage points in 2005: to 20.5 percent from 20.1 percent (see Summary Table 1). Increases in both the effective individual income and corporate income taxes contributed to the change; partially offsetting those increases was a decline in the effective social insurance tax rate. The overall effective excise tax rate was unchanged. The effective individual income tax rate rose by 0.3 percentage points. The applicable tax law was virtually unchanged from 2004 to 2005, so that change primarily reflects changes in the underlying tax base. Part of that increase comes from real bracket creep-the tendency of effective income tax rates to rise as income grows faster than inflation, causing more income to be taxed in higher brackets. An upward shift in the income distribution also contributed to the increase. The rise in effective tax rates was lower than otherwise would have been expected, however, because income from capi- tal gains, which faces lower tax rates than most other income, grew more rapidly than other forms of income, driving down the effective rate. The effective corporate income tax rate also rose, by 0.5 percentage points, reflecting rapid growth in corporate profits and the taxes owed on those profits. In contrast, the effective social insurance tax rate fell by 0.4 percentage points, par- tially offsetting the increases in the other tax rates. Wage income, the base for that tax, grew more slowly than nonwage income, lowering the effective tax rate. And the share 1. Effective tax rates equal the amount of tax liability divided by income. See Congressional Budget Office, Effective Federal Tax Rates, 1979-1997 (October 2001) and Effective Federal Tax Rates, 1997 to 2000 (August 2003), as well as Web-only updates that extend the period of analysis through 2004.

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