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Numbers in the text and tables may not add up to totals because of rounding. Unless otherwise indicated, all dollar values are in 1997 dollars and all years are calendar years. In many tables and at some points in the text, this study presents data for 1997 that are calculated "using 2000 law." Tax year 2000 law differs from 1997 law only for estimates of the individual income tax portion of the tax burden. The differences arise from provisions of the Taxpayer Relief Act of 1997 (for example, the $500 child credit and education credits), most of which were not in effect in 1997. To calculate taxes under 2000 law, the Congressional Budget Office deflated parameters for actual 2000 law by the change in the consumer price index between 1997 and 2000. |
This Congressional Budget Office (CBO) study examines effective federal tax rates--tax liabilities measured as a percentage of income--over the 1979-1997 period for all households and for quintiles, or fifths, of the income distribution. The analysis uses a comprehensive measure of household income that encompasses not only cash income but also the value of benefits received in kind, such as health care and food stamps. The study provides information on the four major federal taxes: individual and corporate income taxes; social insurance, or payroll, taxes; and excise taxes. It also considers the combination of the four.
CBO issued the study in a preliminary form--some appendixes were not included--in May of this year. As noted then, the numbers in the appendix tables were final, and they have not changed in this version. The study was prepared at the request of the Chairman and Ranking Member of the Senate Budget Committee.
Ed Harris, David Weiner, and Roberton Williams of CBO's Tax Analysis Division (TAD) wrote the study under the direction of G. Thomas Woodward. Barbara Edwards of CBO and Rick Kasten, Frank Sammartino, and Robert Taylor (all former TAD staff) reviewed drafts and provided valuable criticism and suggestions. The study also benefited from discussions at a conference on distributional measurement held at CBO in March 2000.
Leah Mazade edited the manuscript, and Christine Bogusz proofread it.
Simone Thomas typed early drafts of both the text and tables, and Kathryn
Winstead prepared the report for final publication. Annette Kalicki prepared
the electronic versions for CBO's World Wide Web site.
Dan L. Crippen
Director
September 2001
ONE - THE DISTRIBUTION OF EFFECTIVE TAX RATES AND INCOME
THREE - THE EFFECTS OF APPLYING ALTERNATIVE DISTRIBUTIONAL METHODS
APPENDIXES
A - A Chronology of CBO's
Work on the Distribution of Federal Taxes
B - CBO's Conference on
Distributional Measurement
C - Comparing the Distributional
Methodologies of CBO, the Treasury Department, and the Joint Committee
on Taxation
D - CBO's Distributional
Methodology
E - Comparing Measures
of Personal Income: CBO and the Bureau of Economic Analysis
F - Comparing Income Statistics
from CBO and the Bureau of the Census
G - Distributional Estimates
Using Adjusted Comprehensive Household Income, by Quintile, 1979-1997
H - Distributional Estimates
Using Household Cash Income, by Dollar Income Category, 1979-1997
I - Distributional Estimates
Using Alternative Measures of Income, 1979-1997
J - Tax Liabilities and
Income Based on Tax-Return Data, by Category of Adjusted Gross Income,
1995-1999
K - Estimates of Total
Effective Tax Rates Using Alternative Measures of Income
| TABLES | |
| 3-1. | Household Characteristics by Household Type, 1979-1997 |
| 3-2. | Income Totals, 1979-1997 |
| 3-3. | Percentages of Families Moving Among Quintiles, by Income Measure, 1997 |
| 3-4. | Distribution of Families Under CBO's Historical Income Measure and the Adjusted Comprehensive Household Income Measure, by Income Quintile, 1997 |
| 3-5. | Distribution of People, Families, and Households Under the Adjusted Comprehensive Household Income Measure, by Income Quintile and Household Type, 1997 |
| A-1. | Previous Congressional Budget Office Work on the Distribution of Federal Taxes |
| C-1. | Summary of Distributional Methodologies |
| E-1. | Differences Between Taxable Personal Income in the NIPAs and CBO's Equivalent Measure, 1997 |
| F-1. | Shares of Income for All Households, by Income Quintile, Using Alternative Income Definitions, 1979-1997 |
| G-1a. | Effective Federal Tax Rates for All Households, by Income Quintile, Using Comprehensive Household Income Adjusted for Household Size, 1979-1997 |
| G-1b. | Shares of Federal Tax Liabilities for All Households, by Income Quintile, Using Comprehensive Household Income Adjusted for Household Size, 1979-1997 |
| G-1c. | Number of Households, Average Pretax and After-Tax Income, Shares of Pretax and After-Tax Income, and Income Category Minimums for All Households, by Income Quintile, Using Comprehensive Household Income Adjusted for Household Size, 1979-1997 |
| G-2a. | Effective Federal Tax Rates for Households with Children, by Income Quintile, Using Comprehensive Household Income Adjusted for Household Size, 1979-1997 |
| G-2b. | Shares of Federal Tax Liabilities for Households with Children, by Income Quintile, Using Comprehensive Household Income Adjusted for Household Size, 1979-1997 |
| G-2c. | Number of Households, Average Pretax and After-Tax Income, Shares of Pretax and After-Tax Income, and Income Category Minimums for Households with Children, by Income Quintile, Using Comprehensive Household Income Adjusted for Household Size, 1979-1997 |
| G-3a. | Effective Federal Tax Rates for Elderly Childless Households, by Income Quintile, Using Comprehensive Household Income Adjusted for Household Size, 1979-1997 |
| G-3b. | Shares of Federal Tax Liabilities for Elderly Childless Households, by Income Quintile, Using Comprehensive Household Income Adjusted for Household Size, 1979-1997 |
| G-3c. | Number of Households, Average Pretax and After-Tax Income, Shares of Pretax and After-Tax Income, and Income Category Minimums for Elderly Childless Households, by Income Quintile, Using Comprehensive Household Income Adjusted for Household Size, 1979-1997 |
| G-4a. | Effective Federal Tax Rates for Nonelderly Childless Households, by Income Quintile, Using Comprehensive Household Income Adjusted for Household Size, 1979-1997 |
| G-4b. | Shares of Federal Tax Liabilities for Nonelderly Childless Households, by Income Quintile, Using Comprehensive Household Income Adjusted for Household Size, 1979-1997 |
| G-4c. | Number of Households, Average Pretax and After-Tax Income, Shares of Pretax and After-Tax Income, and Income Category Minimums for Nonelderly Childless Households, by Income Quintile, Using Comprehensive Household Income Adjusted for Household Size, 1979-1997 |
| H-1a. | Effective Federal Tax Rates for All Households, by Dollar Income Category, Using Household Cash Income Plus Taxes Paid by Businesses, 1979-1997 |
| H-1b. | Shares of Federal Tax Liabilities for All Households, by Dollar Income Category, Using Household Cash Income Plus Taxes Paid by Businesses, 1979-1997 |
| H-1c. | Number of Households, Average Pretax and After-Tax Income, and Shares of Pretax and After-Tax Income for All Households, by Dollar Income Category, Using Household Cash Income Plus Taxes Paid by Businesses, 1979-1997 |
| H-2a. | Effective Federal Tax Rates for Households with Children, by Dollar Income Category, Using Household Cash Income Plus Taxes Paid by Businesses, 1979-1997 |
| H-2b. | Shares of Federal Tax Liabilities for Households with Children, by Dollar Income Category, Using Household Cash Income Plus Taxes Paid by Businesses, 1979-1997 |
| H-2c. | Number of Households, Average Pretax and After-Tax Income, and Shares of Pretax and After-Tax Income for Households with Children, by Dollar Income Category, Using Household Cash Income Plus Taxes Paid by Businesses, 1979-1997 |
| H-3a. | Effective Federal Tax Rates for Elderly Childless Households, by Dollar Income Category, Using Household Cash Income Plus Taxes Paid by Businesses, 1979-1997 |
| H-3b. | Shares of Federal Tax Liabilities for Elderly Childless Households, by Dollar Income Category, Using Household Cash Income Plus Taxes Paid by Businesses, 1979-1997 |
| H-3c. | Number of Households, Average Pretax and After-Tax Income, and Shares of Pretax and After-Tax Income for Elderly Childless Households, by Dollar Income Category, Using Household Cash Income Plus Taxes Paid by Businesses, 1979-1997 |
| H-4a. | Effective Federal Tax Rates for Nonelderly Childless Households, by Dollar Income Category, Using Household Cash Income Plus Taxes Paid by Businesses, 1979-1997 |
| H-4b. | Shares of Federal Tax Liabilities for Nonelderly Childless Households, by Dollar Income Category, Using Household Cash Income Plus Taxes Paid by Businesses, 1979-1997 |
| H-4c. | Number of Households, Average Pretax and After-Tax Income, and Shares of Pretax and After-Tax Income for Nonelderly Childless Households, by Dollar Income Category, Using Household Cash Income Plus Taxes Paid by Businesses, 1979-1997 |
| I-1a. | Effective Federal Tax Rates for All Families, by Income Quintile, Using Family Cash Income, 1979-1997 |
| I-1b. | Shares of Federal Tax Liabilities for All Families, by Income Quintile, Using Family Cash Income, 1979-1997 |
| I-1c. | Number of Families, Average Pretax and After-Tax Income, Shares of Pretax and After-Tax Income, and Income Category Minimums for All Families, by Income Quintile, Using Family Cash Income, 1979-1997 |
| I-2a. | Effective Federal Tax Rates for All Households, by Income Quintile, Using Household Cash Income, 1979-1997 |
| I-2b. | Shares of Federal Tax Liabilities for All Households, by Income Quintile, Using Household Cash Income, 1979-1997 |
| I-2c. | Number of Households, Average Pretax and After-Tax Income, Shares of Pretax and After-Tax Income, and Income Category Minimums for All Households, by Income Quintile, Using Household Cash Income, 1979-1997 |
| I-3a. | Effective Federal Tax Rates for All Households, by Income Quintile, Using Household Cash Income Plus Taxes Paid by Businesses and Employee Contributions to 401(k) Retirement Plans, 1979-1997 |
| I-3b. | Shares of Federal Tax Liabilities for All Households, by Income Quintile, Using Household Cash Income Plus Taxes Paid by Businesses and Employee Contributions to 401(k) Retirement Plans, 1979-1997 |
| I-3c. | Number of Households, Average Pretax and After-Tax Income, Shares of Pretax and After-Tax Income, and Income Category Minimums for All Households, by Income Quintile, Using Household Cash Income Plus Taxes Paid by Businesses and Employee Contributions to 401(k) Retirement Plans, 1979-1997 |
| I-4a. | Effective Federal Tax Rates for All Households, by Income Quintile, Using Household Cash Income Plus Taxes Paid by Businesses, Employee Contributions to 401(k) Retirement Plans, and Nonhealth In-Kind Benefits, 1979-1997 |
| I-4b. | Shares of Federal Tax Liabilities for All Households, by Income Quintile, Using Household Cash Income Plus Taxes Paid by Businesses, Employee Contributions to 401(k) Retirement Plans, and Nonhealth In-Kind Benefits, 1979-1997 |
| I-4c. | Number of Households, Average Pretax and After-Tax Income, Shares of Pretax and After-Tax Income, and Income Category Minimums for All Households, by Income Quintile, Using Household Cash Income Plus Taxes Paid by Businesses, Employee Contributions to 401(k) Retirement Plans, and Nonhealth In-Kind Benefits, 1979-1997 |
| I-5a. | Effective Federal Tax Rates for All Households, by Income Quintile, Using Comprehensive Household Income, 1979-1997 |
| I-5b. | Shares of Federal Tax Liabilities for All Households, by Income Quintile, Using Comprehensive Household Income, 1979-1997 |
| I-5c. | Number of Households, Average Pretax and After-Tax Income, Shares of Pretax and After-Tax Income, and Income Category Minimums for All Households, by Income Quintile, Using Comprehensive Household Income, 1979-1997 |
| I-6a. | Effective Federal Tax Rates for All Households, by Income Quintile, Based on Comprehensive Household Income Adjusted Using Federal Poverty Thresholds, 1979-1997 |
| I-6b. | Shares of Federal Tax Liabilities for All Households, by Income Quintile, Based on Comprehensive Household Income Adjusted Using Federal Poverty Thresholds, 1979-1997 |
| I-6c. | Number of Households, Average Pretax and After-Tax Income, Shares of Pretax and After-Tax Income, and Income Category Minimums for All Households, by Income Quintile, Based on Comprehensive Household Income Adjusted Using Federal Poverty Thresholds, 1979-1997 |
| I-7a. | Effective Federal Tax Rates for All Families, by Income Quintile, Based on Family Cash Income Plus Taxes Paid by Businesses, Adjusted Using Federal Poverty Thresholds, 1979-1997 |
| I-7b. | Shares of Federal Tax Liabilities for All Families, by Income Quintile, Based on Family Cash Income Plus Taxes Paid by Businesses, Adjusted Using Federal Poverty Thresholds, 1979-1997 |
| I-7c. | Number of Families, Average Pretax and After-Tax Income, Shares of Pretax and After-Tax Income, and Income Category Minimums for All Families, by Income Quintile, Based on Family Cash Income Plus Taxes Paid by Businesses, Adjusted Using Federal Poverty Thresholds, 1979-1997 |
| J-1. | Federal Individual Income Tax Liabilities and Income Based on Tax-Return Data, by Adjusted Gross Income, 1995-1999 |
| K-1. | Total Effective Federal Tax Rates, by Income Quintile, Using Alternative Measures of Income, 1979-1997 |
| FIGURES | |
| S-1. | Reduction in Total Effective Federal Tax Rates Between 1979 and 1997, by Income Quintile |
| S-2. | Effective Federal Tax Rates, by Revenue Source and Income Quintile, 1979 and 1997 |
| S-3. | Effective Federal Individual Income and Social Insurance Tax Rates, by Income Quintile, 1997 |
| S-4. | Percentage Change in Real Pretax Comprehensive Household Income, by Income Quintile, 1979-1997 |
| S-5. | Shares of Real Pretax Comprehensive Household Income and Total Federal Tax Liabilities, by Income Quintile, 1979 and 1997 |
| S-6. | Total Effective Federal Tax Rates, by Income Quintile, 1979-1997 |
| S-7. | Effective Federal Tax Rates, by Revenue Source, 1979-1997 |
| 1-1. | Total Effective Federal Tax Rates, 1979-1997 |
| 1-2. | Total Effective Federal Tax Rates, by Income Quintile, 1979-1997 |
| 1-3. | Earnings as a Share of Income for Households in the Lowest Quintile of the Income Distribution, 1979-1997 |
| 1-4. | Capital Gains as a Share of Income for Households in the Top 1 Percent of the Income Distribution, 1979-1997 |
| 1-5. | Percentage Change from 1979 in Real Pretax Household Income, by Income Group |
| 1-6. | Shares of Pretax Household Income, by Income Group, 1979-1997 |
| 1-7. | Shares of Total Federal Revenues, by Source, 1979-1997 |
| 1-8. | Effective Individual Income Tax Rates, by Income Group, 1979-1997 |
| 1-9. | Shares of Individual Income Taxes, by Income Group, 1979-1997 |
| 1-10. | Effective Social Insurance Tax Rates, by Income Group, 1979-1997 |
| 1-11. | Effective Federal Tax Rates, by Income Quintile and Revenue Source, 1979-1997 |
| 1-12. | Shares of After-Tax Household Income, by Income Group, 1979-1997 |
| 1-13. | Effective Tax Rates for Households with Children, by Revenue Source, 1979-1997 |
| 1-14. | Effective Tax Rates for Elderly Childless Households, by Revenue Source, 1979-1997 |
| 1-15. | Total Effective Federal Tax Rates, by Income Category, 1979-1997 |
| 3-1. | Total Effective Federal Tax Rates, by Income Measure, 1979-1997 |
| 3-2. | Total Effective Federal Tax Rates, by Income Measure and Quintile, 1979-1997 |
| 3-3. | Effective Federal Tax Rates, by Income Measure and Revenue Source, 1979-1997 |
| 3-4. | Effective Federal Individual Income Tax Rates, by Income Measure and Quintile, 1979-1997 |
| 3-5. | Effective Federal Social Insurance Tax Rates, by Income Measure and Quintile, 1979-1997 |
| 3-6. | Effective Federal Corporate Income Tax Rates, by Income Measure and Quintile, 1979-1997 |
| 3-7. | Effective Federal Excise Tax Rates, by Income Measure and Quintile, 1979-1997 |
| 3-8. | Average Real Pretax Income by Income Measure, 1979-1997 |
| 3-9. | Average Real Pretax Income by Income Measure and Quintile, 1979-1997 |
| C-1. | Comparing Total Effective Federal Tax Rates as Calculated by the Department of the Treasury and CBO, by Income Quintile, 1997 |
| C-2. | Comparing Total Effective Federal Tax Rates as Calculated by the Joint Committee on Taxation and CBO, by Dollar Income Category, 1997 |
| E-1. | Total Income in the NIPAs and in CBO's Equivalent Measure, 1979-1997 |
| BOXES | |
| 1-1. | Income Mobility |
| 1-2. | Individual Income Tax Receipts as a Percentage of GDP |
| 1-3. | Trends in the Individual Income Tax Since 1997 |
| 3-1. | Measures of Income |
