Current Law Distribution of Federal Taxes
November 30, 2006
The following tables show Tax Policy Center estimates of the distribution of federal taxes for various years from 2006 through 2017. In each table, we show the share of the following federal taxes paid by income group: the individual and corporate income taxes; payroll taxes for Social Security and Medicare; and the estate tax. We also show the average effective tax rate by income class, which is the average amount of tax paid as a percentage of average income for each group. The estimates are computed both for dollar income classes (e.g., $40,000 to $50,000) and for percentiles of the income distribution (e.g., middle quintile, or fifth, which includes households in the middle of the income distribution).
(November 30, 2006) - T06-0303 - Current-Law Distribution of Federal Taxes by Cash Income Class, 2006
(November 30, 2006) - T06-0304 - Current-Law Distribution of Federal Taxes by Cash Income Percentiles, 2006
(November 30, 2006) - T06-0305 - Current-Law Distribution of Federal Taxes by Economic Income Class, 2006
(November 30, 2006) - T06-0306 - Current-Law Distribution of Federal Taxes by Economic Income Percentiles, 2006
(November 30, 2006) - T06-0307 - Current-Law Distribution of Federal Taxes by Cash Income Class, 2007
(November 30, 2006) - T06-0308 - Current-Law Distribution of Federal Taxes by Cash Income Percentiles, 2007
(November 30, 2006) - T06-0309 - Current-Law Distribution of Federal Taxes by Cash Income Class, 2010
(November 30, 2006) - T06-0310 - Current-Law Distribution of Federal Taxes by Cash Income Percentiles, 2010
(November 30, 2006) - T06-0311 - Current-Law Distribution of Federal Taxes by Cash Income Class, 2011
(November 30, 2006) - T06-0312 - Current-Law Distribution of Federal Taxes by Cash Income Percentiles, 2011
(November 30, 2006) - T06-0313 - Current-Law Distribution of Federal Taxes by Cash Income Class, 2017
(November 30, 2006) - T06-0314 - Current-Law Distribution of Federal Taxes by Cash Income Percentiles, 2017
Summary of Results
- The individual income tax is progressive and actually provides subsidies on average for the bottom two quintiles. Overall, about 40 percent of tax units pay no individual income tax or receive a net subsidy. In 2006, the individual income tax comprises 13.7 percent of cash income for the top quintile, compared with -5.0 percent for the bottom quintile. At very high incomes, however, the effective income tax rate actually declines, primarily because so much of the income of such households is comprised of lightly taxed capital gains (Table T06-0304).
- The estate tax is the most progressive tax: more than 90 percent of the tax is paid by the top ten percent of cash income earners in 2006 (Table T06-0304). Note that many estate taxpayers whose cash incomes appear to be low actually have substantial unrealized wealth. When taxpayers are categorized by a more comprehensive measure of income, virtually all the tax is paid by the top 10 percent (Table T06-0306).
- Payroll taxes are regressive, comprising a much larger share of income for those in the middle of the distribution than for those at the top. In 2006, the average effective payroll tax rate is 10.7 percent for those in the middle quintile and 1.9 percent for the top one percent of income earners (Table T06-0304).
- Overall, the federal tax system is progressive. The average effective tax rate in 2006 rises from 3.5 percent for the bottom quintile to 25.3 percent for the top quintile (Table T06-0304).
- In 2011, after the 2001-6 tax cuts expire, the federal tax system becomes substantially more progressive. The average effective tax rate for those in the top one percent rises from 29.0 percent in 2010 to 33.2 percent in 2011; for those in the middle of the income distribution, the increase is from 14.9 percent to 16.8 percent (Tables T06-0310 and T06-0312). The share of all federal taxes paid by those earning $1 million or more rises from 16.6 percent in 2010 to 17.6 percent in 2011 (Tables T06-0309 and T06-0311).
- By 2017, tax burdens shift somewhat to middle and upper-middle income households because of the growth of the alternative minimum tax (AMT). The average effective tax rate for those making between $75,000 and $100,000 (in 2006 dollars) rises from 22.6 percent in 2011 to 23.4 percent in 2017; for those making between $200,000 and $500,000 the increase is from 28.2 percent to 29.2 percent (Tables T06-0311 and T06-0313). Over time, the corporate tax is forecast to decline as a share of overall federal revenues, which also reduces the overall progressivity of the tax system somewhat
Incidence Assumptions
A key insight from economics is that taxes are not always borne by the individual or business that writes the check to the IRS. Sometimes taxes are shifted. For example, most economists believe that the employer portion of payroll taxes translate into lower wages and are thus ultimately borne by workers. There is not a consensus, however, on the economic incidence of other taxes, such as the corporate income tax.
The Tax Policy Center's incidence assumptions follow those adopted by the Congressional Budget Office and the Department of the Treasury. In particular, our tables assume the following:
- The individual income tax is borne directly by individual income taxpayers;
- Both the employee and employer share of payroll taxes are borne by the employee;
- The corporate income tax is borne by recipients of capital income (interest, dividends, capital gains, and rents);
- The estate tax is borne by decedents.
Other resources
The following article contains more information about the distribution of the estate tax.
The following article provides the Tax Policy Center's most recent AMT estimates and projections.
For information about incidence assumptions used by the Treasury Department, see:
Income classes in this article refer to percentiles of the distribution of cash income unless otherwise noted. The dollar values for the percentile breaks for both cash and economic income can be found here.
