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Effective Federal Tax Rates Under Current Law, 2001 to 2014
August 2004		 PDF



APPENDIX
B
Effects of Provisions on Partial Expensing
of Investment and Net Operating Losses

The Job Creation and Worker Assistance Act of 2002 (JCWAA) and the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA) both provided incentives for businesses to invest between September 10, 2001, and January 1, 2005. JCWAA allowed an additional deduction of first-year depreciation equal to 30 percent of the basis of qualified property, and JGTRRA increased that percentage to 50 percent. JGTRRA also raised, from $25,000 to $100,000, the limit on the expensing of business property put into service during the 2003-2005 period. The provisions serve to shift the deductibility of depreciation of business assets, decreasing taxes in the near term but increasing them in later years, when firms can no longer deduct depreciation because it was claimed earlier.

Those provisions to encourage business investment have a significant impact on effective tax rates in each year during the 2002-2008 period, lowering rates in the first three years but raising them in later years (see Tables B-1 and B-2). That impact can be measured by comparing the change in total effective federal tax rates under current tax law and 2000 tax law, with and without the provisions to encourage investment.

Table B-1.

Changes in Total Effective Federal Tax Rates With and Without Provisions Affecting Partial Expensing of Investment and Net Operating Losses, Under Current Tax Law and 2000 Tax Law, by Income Category, 2001 to 2014
(Percentage points)

Income Category 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Change with Provisions Affecting Partial Expensing and Net Operating Losses
 
Lowest
Quintile		 -0.8 -1.1 -1.4 -1.5 -1.4 -1.4 -1.4 -1.5 -1.6 -1.9 0 0 0 0
Second
Quintile		 -1.1 -1.3 -2.1 -2.1 -1.3 -1.3 -1.3 -1.4 -1.5 -1.7 0 0 0 0
Middle
Quintile		 -1.0 -1.3 -1.8 -1.9 -1.0 -1.0 -1.0 -1.1 -1.1 -1.3 0 0 0 0
Fourth
Quintile		 -0.8 -1.1 -1.9 -2.1 -1.1 -1.0 -1.0 -1.1 -1.0 -1.1 0 0 0 0
Highest Quintile -0.5 -2.1 -3.1 -3.9 -1.5 -1.4 -1.4 -1.6 -1.1 -1.2 0.1 0.1 0 0
 
All Quintiles -0.7 -1.7 -2.6 -3.0 -1.3 -1.3 -1.3 -1.4 -1.2 -1.3 0.1 0 0 0
 
Top 10 Percent -0.4 -2.4 -3.5 -4.5 -1.6 -1.5 -1.6 -1.8 -1.2 -1.3 0.1 0.1 0 0
Top 5 Percent -0.4 -2.9 -3.9 -5.2 -1.8 -1.7 -1.8 -2.1 -1.3 -1.6 0.2 0.1 0 0
Top 1 Percent -0.3 -3.8 -5.0 -6.8 -2.4 -2.3 -2.6 -3.1 -2.0 -2.4 0.2 0.1 0 0
 
Change Without Provisions Affecting Partial Expensing and Net Operating Losses
 
Lowest
Quintile		 -0.8 -1.0 -1.3 -1.4 -1.4 -1.4 -1.4 -1.5 -1.6 -1.9 0 0 0 0
Second
Quintile		 -1.1 -1.2 -2.0 -1.9 -1.4 -1.4 -1.4 -1.4 -1.5 -1.8 0 0 0 0
Middle
Quintile		 -1.0 -1.0 -1.7 -1.7 -1.1 -1.1 -1.1 -1.2 -1.2 -1.3 0 0 0 0
Fourth
Quintile		 -0.8 -0.9 -1.8 -1.8 -1.1 -1.1 -1.1 -1.2 -1.1 -1.1 0 0 0 0
Highest Quintile -0.5 -0.7 -2.3 -2.4 -1.9 -1.9 -1.9 -2.0 -1.4 -1.4 0 0 0 0
 
All Quintiles -0.7 -0.8 -2.1 -2.1 -1.6 -1.6 -1.6 -1.6 -1.3 -1.4 0 0 0 0
 
Top 10 Percent -0.4 -0.6 -2.5 -2.6 -2.2 -2.2 -2.2 -2.3 -1.5 -1.5 0 0 0 0
Top 5 Percent -0.4 -0.6 -2.6 -2.8 -2.5 -2.6 -2.5 -2.7 -1.7 -1.8 0 0 0 0
Top 1 Percent -0.3 -0.6 -3.1 -3.5 -3.4 -3.6 -3.6 -3.9 -2.5 -2.7 0 0 0 0
 
Difference Attributable to Provisions Affecting Partial Expensing and Net Operating Losses
 
Lowest
Quintile		 0 -0.1 -0.1 -0.1 * * * * * * * * * 0
Second
Quintile		 0 -0.2 -0.1 -0.2 * 0.1 0.1 * * * * * * 0
Middle
Quintile		 0 -0.3 -0.1 -0.2 0.1 0.1 0.1 0.1 * * * * * 0
Fourth
Quintile		 0 -0.3 -0.2 -0.3 0.1 0.1 0.1 0.1 * * * * * 0
Highest Quintile 0 -1.4 -0.8 -1.4 0.4 0.6 0.5 0.4 0.3 0.2 0.1 0.1 * 0
 
All Quintiles 0 -0.8 -0.5 -0.9 0.2 0.3 0.3 0.2 0.2 0.1 0.1 * * 0
 
Top 10 Percent 0 -1.8 -1.0 -1.8 0.5 0.7 0.6 0.5 0.3 0.2 0.1 0.1 * 0
Top 5 Percent 0 -2.3 -1.3 -2.3 0.7 0.9 0.8 0.6 0.4 0.3 0.2 0.1 * 0
Top 1 Percent 0 -3.2 -1.8 -3.3 1.0 1.3 1.1 0.8 0.6 0.4 0.2 0.1 * 0
Source: Congressional Budget Office.

Note: The notes that appear in Table 2 also apply to this table.

Table B-2.

Effective Federal Tax Rates and Shares Under Current Tax Law Excluding Provisions Affecting Partial Expensing of Investment and Net Operating Losses, Based on 2001 Incomes, by Income Category, 2001 to 2014
Income Category 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Total Effective Federal Tax Rate
 
Lowest Quintile 5.4 5.4 5.2 5.3 5.4 5.6 5.7 5.8 5.8 5.7 7.8 8.0 8.1 8.3
Second Quintile 11.6 11.7 11.1 11.3 11.9 12.1 12.3 12.3 12.4 12.3 14.2 14.4 14.5 14.7
Middle Quintile 15.2 15.3 14.7 14.8 15.5 15.6 15.8 15.9 16.1 16.1 17.6 17.8 18.0 18.2
Fourth Quintile 19.3 19.4 18.6 18.8 19.6 19.7 19.9 20.1 20.3 20.5 21.8 22.0 22.2 22.4
Highest Quintile 26.8 26.8 25.2 25.2 25.8 25.9 26.0 26.1 26.8 26.9 28.4 28.5 28.7 28.8
 
All Quintiles 21.5 21.5 20.4 20.5 21.2 21.3 21.4 21.5 22.0 22.0 23.6 23.7 23.9 24.1
 
Top 10 Percent 28.6 28.5 26.8 26.7 27.2 27.3 27.4 27.4 28.3 28.3 30.0 30.1 30.2 30.3
Top 5 Percent 30.1 30.0 28.0 27.9 28.3 28.3 28.4 28.4 29.4 29.4 31.3 31.4 31.5 31.6
Top 1 Percent 33.0 32.8 30.3 30.0 30.0 29.9 29.9 29.6 31.0 30.8 33.6 33.6 33.6 33.6
 
Effective Individual Income Tax Rate
 
Lowest Quintile -5.6 -5.6 -5.8 -5.7 -5.6 -5.4 -5.3 -5.2 -5.2 -5.3 -3.2 -3.0 -2.9 -2.7
Second Quintile 0.3 0.4 -0.2 -0.1 0.6 0.8 1.0 1.0 1.1 1.0 2.9 3.1 3.2 3.4
Middle Quintile 3.8 3.9 3.3 3.5 4.2 4.3 4.5 4.5 4.7 4.8 6.3 6.5 6.7 6.9
Fourth Quintile 7.2 7.3 6.5 6.7 7.5 7.6 7.8 8.0 8.3 8.4 9.7 9.9 10.1 10.3
Highest Quintile 16.3 16.2 14.7 14.7 15.3 15.4 15.5 15.6 16.3 16.4 17.9 18.0 18.2 18.3
 
All Quintiles 10.4 10.4 9.3 9.3 10.0 10.1 10.3 10.3 10.8 10.9 12.4 12.6 12.7 12.9
 
Top 10 Percent 18.7 18.5 16.8 16.7 17.3 17.3 17.5 17.5 18.3 18.4 20.0 20.2 20.3 20.4
Top 5 Percent 20.8 20.6 18.7 18.5 19.0 19.0 19.1 19.0 20.1 20.1 21.9 22.0 22.1 22.2
Top 1 Percent 24.1 23.9 21.3 21.0 21.1 20.9 20.9 20.7 22.1 21.9 24.6 24.6 24.6 24.7
 
Share of Total Federal Tax Liabilities
 
Lowest Quintile 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.1 1.4 1.4 1.4 1.5
Second Quintile 5.0 5.0 5.0 5.0 5.2 5.2 5.2 5.3 5.2 5.1 5.5 5.6 5.6 5.6
Middle Quintile 10.0 10.1 10.2 10.3 10.4 10.4 10.5 10.5 10.4 10.4 10.6 10.7 10.7 10.7
Fourth Quintile 18.5 18.6 18.9 18.9 19.1 19.2 19.2 19.3 19.2 19.2 19.1 19.2 19.2 19.2
Highest Quintile 65.3 65.1 64.7 64.5 64.0 63.9 63.7 63.6 64.0 64.0 63.2 63.0 62.9 62.8
 
All Quintiles 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
 
Top 10 Percent 50.0 49.7 49.2 49.0 48.4 48.2 48.1 48.0 48.4 48.3 47.8 47.7 47.6 47.4
Top 5 Percent 38.5 38.3 37.8 37.5 36.9 36.7 36.5 36.4 36.9 36.7 36.5 36.4 36.3 36.1
Top 1 Percent 22.7 22.5 21.9 21.6 21.0 20.8 20.6 20.4 20.9 20.7 21.1 20.9 20.8 20.7
 
Share of Individual Income Tax Liabilities
 
Lowest Quintile -2.3 -2.3 -2.6 -2.6 -2.4 -2.3 -2.2 -2.1 -2.0 -2.0 -1.1 -1.0 -1.0 -0.9
Second Quintile 0.3 0.4 -0.2 -0.1 0.6 0.7 0.9 0.9 0.9 0.8 2.2 2.3 2.3 2.4
Middle Quintile 5.2 5.4 5.1 5.3 5.9 6.0 6.2 6.2 6.2 6.2 7.2 7.3 7.4 7.6
Fourth Quintile 14.3 14.5 14.6 14.8 15.5 15.7 15.8 16.0 15.8 16.0 16.2 16.3 16.4 16.5
Highest Quintile 82.5 82.0 83.2 82.5 80.4 79.9 79.4 79.1 79.1 79.0 75.6 75.2 74.8 74.4
 
All Quintiles 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
 
Top 10 Percent 67.7 67.2 68.2 67.5 65.1 64.5 64.0 63.6 63.8 63.6 60.7 60.3 59.9 59.5
Top 5 Percent 55.2 54.7 55.5 54.7 52.3 51.7 51.2 50.7 51.1 50.8 48.7 48.2 47.9 47.4
Top 1 Percent 34.4 34.0 34.1 33.3 31.2 30.6 30.2 29.6 30.2 29.8 29.3 29.0 28.7 28.3
Source: Congressional Budget Office.

Note: The notes that appear in Table 2 also apply to this table.
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