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Historical Effective Federal Tax Rates: 1979 to 2006 1 (April 2009)

handle is hein.congrec/cbo1057 and id is 1 raw text is: Historical Effective Federal Tax Rates: 1979 to 2006 April 2009 The following tables update the Congressional Budget Office's (CBO's) estimates of historical effective tax rates-that is, households' tax liability divided by their income-for various income categories.! These new tables incorporate estimates for an additional calendar year, 2006, 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 before-tax 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. In 2006, the overall effective federal tax rate was 20.7 percent (see Table 1). Individual income taxes, the largest component, were 9.1 percent of household income. Payroll taxes were the next largest source, with an effective tax rate of 7.5 percent. Corporate income taxes and excise taxes were smaller, with effective tax rates of 3.4 percent and 0.7 percent. The overall federal tax system is progressive-that is, effective tax rates generally rise with income. Households in the bottom fifth of the income distribution paid 4.3 percent of their income in federal taxes, while the middle quintile paid 14.2 percent, and the highest quintile paid 25.8 percent. Average rates continued to rise within the top quintile, with the top percentile facing an effective rate of 31.2 percent. Higher-income groups pay a disproportionate share of federal taxes because they earn a disproportionate share of pretax income and because effective tax rates rise with income. In 2006, the highest quintile earned 55.7 percent of pretax income and paid 69.3 percent of federal taxes, while the top 1 percent of households earned 18.8 percent of income and paid 28.3 percent of taxes. In all other quintiles, the share of federal taxes was less than the income share. The bottom 'For earlier publications on this topic, data for earlier years, and detailed discussions, see CBO's special collection Data on the Distribution of Federal Taxes and Household Income, available at www cho covipu blicationsicollccionis!ixdis/ rihu tion cfm.

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