High Taxes for Some, Negative Taxes for Others
The charts below show the latest data from the Congressional Budget Office (CBO) on income and federal taxes paid by households from 1979 to 2009. In Figure 1, we can see that average effective income tax rates have declined considerably for almost everyone, except the top 1 percent of earners.
The decline is most pronounced for the bottom quintile (bottom 20 percent) of households, whose average tax rate went from zero in 1979 to a new record low of -9.3 percent in 2009. That means low-income households now receive more from the IRS in terms of refundable tax credits, such as the Earned Income Tax Credit, than they pay in taxes. This trend has accelerated since 2007, when their tax rate was -5.8 percent, mainly because of higher unemployment and underemployment.High Income Households Paying a Larger Share of Income Taxes
The share of income taxes paid by top earners has increased as well. As Figure 2 shows, the share paid by the top 20 percent of households was 94.1 percent in 2009, just shy of the record high of 94.6 percent in 2008. This is up from 64.7 percent in 1979.Likewise, the share of taxes paid by the top 1 percent has increased from 18.4 percent in 1979 to 38.7 percent in 2009. In contrast, the share of income taxes paid by the bottom four quintiles has decreased since 1979, particularly since 2007.CBO Report Shows Increasing Redistribution in the Tax Code Despite No Long-term Trend in Income Inequality | Tax FoundationThis CBO report does confirm one ongoing trend: greater redistribution through the tax code. Progressivity of federal income taxes is at a record high. Effective income tax rates have gone negative for the bottom 40 percent of households and are approaching zero for the 20 percent of households considered the “middle class.” In contrast, tax rates on the top 1 percent of households have remained high at about 21 percent. As a result, the share of income taxes paid by the top 1 percent has increased dramatically since 1979, reaching 38.7 percent in 2009. The top 20 percent of households now pay more than 94 percent of income taxes, roughly matching the record high set in 2008.
Must be nice living in fantasy land.