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The Tax Policy Center has revised its microsimulation tax model, updating and broadening its underlying database and adding excise taxes to the mix of federal taxes it models. New baseline tables covering 2011-2025 largely match previous estimates, showing that Americans will pay an average of 19.8 percent of their income in federal taxes this year.
They pay about half in individual income taxes at an average tax rate of 9.5 percent. Another third goes to payroll taxes, which will claim 6.9 percent of income. Corporate income taxes (2.4 percent), excise taxes (0.8 percent), and estate taxes (0.1 percent) will make up the rest of the revenue TPC includes in its estimates.
Along with adding excise taxes, TPC also shifted the base year for the model from 2004 to 2011 and completely revised its retirement, education, and health modules. Estimates out to 2025 rely on economic projections from the Congressional Budget Office.
One significant result of the model update is that we’ve increased the number of tax units to 171 million in 2015, about 4 percent more than our previous estimate. We’ve made the change based on the updated methodology employed by the Joint Committee on Taxation, which better measures the number of tax units that do not file income tax returns (although they generally do pay payroll and other taxes).
Adding excise taxes—the federal levies on gas, tobacco, alcohol, and other items—to the estimates reduces the measured progressivity of federal taxes. Households in the lowest income quintile (the bottom 20 percent of tax units) will pay an average of 1.4 percent of their income in excise taxes this year, compared with 0.6 percent for the top quintile and just 0.3 percent for the top 0.1 percent. Those estimates reflect the fact that lower-income households spend relatively more on goods and services that may be subject to excise taxes.
Though it revised its database and added excise taxes, TPC shows a picture of the federal tax system similar to that of earlier estimates. The substantial progressivity of the income and estate taxes more than offsets the regressivity of payroll and excise taxes, leaving an overall progressive federal tax system.