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Five Key Takeaways from CBO’s Analysis: The Distribution of Household Income and Federal Taxes

Five Key Takeaways from CBO’s Analysis: The Distribution of Household Income and Federal Taxes






  1. Since 1979, all income groups are getting richer, but still fall short of their pre-recession highs.  Over the 35-year period from 1979 to 2013, average inflation-adjusted market income (before taxes and federal transfers) increased for each income group.[1]
  1. From 2012 to 2013, all income levels saw an increase in their federal tax rate as a result of changes in tax laws.  The three most significant tax hikes were the result of the Affordable Care Act (ACA), the expiration of some of the Bush tax cuts and changes to payroll taxes. New taxes enacted in the ACA took effect in 2013.  Tax provisions for high-income taxpayers, originally enacted in 2001, expired at the end of 2012.  Payroll tax rates that had been temporarily reduced in 2011 and 2012 were reset to their previous level in 2013.
[2]
  1. Top earners, which include many small- and medium-sized businesses, continued to pay a larger share of federal individual income taxes in 2013 than their share of income.  In 2013 the top 1 percent earned 15 percent of total before-tax income and paid 38.3 percent of total individual income taxes.  The bottom 20 percent of earners earned about 5 percent of total income and paid a negative individual income tax rate of 4 percent. Despite calls to hike taxes even further on higher earners, our income tax system is already highly progressive, with the top 20 percent of earners paying 88 percent of the burden and the  bottom 40 percent of earners getting more out of the individual income tax system than they pay in.[3]
  1. Federal transfer payments remain elevated compared to pre-recession levels.  In fact, federal transfer payments continued to rise over the long term, both in real terms and as a share of after-tax income for virtually all income groups, and are expected to grow in the future. In 2013, federal government transfers made up 14 percent of total before-tax income.  Of that amount, Social Security and Medicare made up 10 percent of income, while the other four percent resulted from Medicaid and other cash and in-kind payments.[4] Furthermore, the lowest fifth of income earners became more dependent on government from 1979 to 2013.  While market income for these earners rose by 18 percent, income grew 39 percent after adding in government transfers.[5]
  1. Some taxes disproportionately hurt low-income households.  Excise taxes such as federal taxes on motor fuels, tobacco, alcohol, and air travel are regressive, meaning the burden is greatest on the lowest-income households.  In 2013 the lowest 20 percent of earners paid about 1.7 percent of their income in excise tax while the highest 20 percent of earners paid 0.4 percent.[6]

[1] “The Distribution of Household Income and Federal Taxes, 2013” Congressional Budget Office, June 8, 2016, https://www.cbo.gov/sites/default/files/114th-congress-2015-2016/reports/51361-HouseholdIncomeFedTaxes.pdf, p. 2.

[2] CBO, 2016, p. 9

[3] CBO, 2016, p. 10. See also: Supplemental Data, https://www.cbo.gov/publication/51361.

[4] CBO, 2016, p. 8.

[5] CBO, 2016, p. 17, “Growth in Means-Tested Programs and Tax Credits for Low-Income Households” Congressional Budget Office, February 11 2013, https://www.cbo.gov/sites/default/files/113th-congress-2013-2014/reports/43934-Means-TestedPrograms_0.pdf.

[6] CBO, 2016, p. 12.

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