Average Federal Tax Rates, by Income Percentile

Average Tax Rates 2006

Since we were talking taxes and redistribution of income, I thought it would be relevant to give you some information on the Average Tax Rates paid by different segments of the population over the course of the last 30 years.

Average Tax Rates, 1980-2006
(Percentage of Adjusted Gross Income paid in income taxes)

Year

Total

Top 1%

Top 2-5%

Top 6-10%

Top 11-25%

Top 26-50%

Bottom 50%

1980 15.31% 34.47% 21.71% 17.13% 14.80% 11.91% 6.10%
1981 15.76% 33.37% 22.08% 18.16% 15.53% 12.48% 6.62%
1982 14.72% 31.43% 20.44% 16.61% 14.35% 11.63% 6.10%
1983 13.79% 30.18% 18.77% 15.54% 13.20% 10.76% 5.66%
1986 14.54% 33.13% 19.10% 15.99% 12.97% 10.48% 5.63%
1987 13.12% 26.41% 18.13% 14.43% 11.71% 9.45% 5.09%
1991 12.75% 24.37% 17.10% 13.96% 11.57% 9.55% 4.62%
1992 12.94% 25.05% 17.21% 13.99% 11.39% 9.42% 4.39%
1993 13.32% 28.01% 17.48% 14.01% 11.40% 9.37% 4.29%
1996 14.34% 28.87% 18.68% 14.74% 11.86% 9.53% 4.40%
1997 14.48% 27.64% 18.78% 14.87% 12.04% 9.63% 4.48%
2001 14.23% 27.50% 19.12% 14.89% 11.58% 8.91% 4.09%
2002 13.03% 27.25% 18.15% 13.87% 10.47% 7.67% 3.21%
2004 12.10% 23.49% 16.95% 12.28% 9.26% 7.01% 2.97%
2005 12.45% 23.13% 17.36% 12.37% 9.27% 6.93% 2.98%
2006 12.60% 22.79% 17.48% 12.60% 9.36% 7.01% 3.01%
Effective Federal Tax Rates 2005

The Congressional Budget Office (CBO) regularly publishes analyses of the distribution of federal taxes and household income. The most recent report, Historical Effective Federal Tax Rates: 1979 to 2005, was released in December 2007.

Total (i.e., all federal taxes, not just income taxes) Effective Federal Tax Rates for 2005

Lowest quintile 4.3 percent
Second quintile 9.9 percent
Middle quintile 14.2 percent
Fourth quintile 17.4 percent
Percentiles 81-90 20.3 percent
Percentiles 91-95 22.4 percent
Percentiles 96-99 25.7 percent
Percentiles 99.0-99.5 29.7 percent
Percentiles 99.5-99.9 31.2 percent
Percentiles 99.9-99.99 32.1 percent
Top 0.01 Percentile 31.5 percent

  • It would be interested to see how the overall reduction in average federal tax rates has been balanced by increases/decreases in state and local taxes. I suspect the overall national tax scheme is not as progressive as this chart of federal taxes would make it seem.
  • The 3% tax rate on the bottom 50% is misleading. More accurately, it encapsulates too many people to accurately make an assessment. (I.e., if the Bottom 20% aren’t paying any taxes then Bottom 50-75% probably pay closer to a 6% federal tax rate).
  • As of 2006, the minimum earnings to fall into a particular percentile was as follows:Top 1%: $388,806
    Top 5%: $153,542
    Top 10%: $108,904
    Top 25%: $64,702
    Top 50%: $31,987
  • As of 2006, if you earned the minimum to fall into a particular percentile then you paid the following in taxes:Top 1%: $88,608
    Top 5%: $31,752
    Top 10%: $13,721
    Top 25%: $6,056
    Top 50%: $2,239
  • In 2006, the percentage of federal taxes paid by each of the following percentiles was:Top 1%: 39.89%
    Top 2-5%: 20.25%
    Top 6-10%: 10.65%
    Top 11-25%: 15.47%
    Top 26-50%: 10.75%
    Bottom 50%: 2.99%
  • In 2006, the percentage of federal taxes paid by each of the following percentiles was:Top 1%: 39.89%
    Top 5%: 60.14%
    Top 10%: 70.79%
    Top 25%: 86.27%
    Top 50%: 97.01%
    Bottom 50%: 2.99%

    
    
    
    
    

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  • 12 Comments

    1. I’ll tell you what I think. I think average earning americans need to find their wealthy neighbors and say “Thank You” to them for funding the government. Everyone demonizes the wealthy as being greedy and not paying their “fair share”. But the reality is, if we didn’t have the people in that top 5% paying the taxes they do, we would find government to be impossibly unfundable(is that a word)?

      I think we’re going about this all wrong. In stead of being angry at wealthy individuals as being greedy, we should be thanking them for making enough money to allow the government to operate at all.

      So, go out and find a doctor, or a lawyer or an architect with really expensive looking glasses, and slap them on the back and give them a hardy “Thanks!”.

    2. You mean all the money they hide from the government or all the ‘charities’ they give their money too??

    3. Niki,

      I get what you’re saying and have similar feelings about “legal” tax evasion. However, the numbers Brian references are pretty clear. Hiding their money or not, the wealthy are paying the taxes in this country. Period. The top 10% are covering 60% of the operational costs of the country. My guess is that these people don’t send their kids to public school either, if you get my meaning.

      I just think it’s funny that the class warfare perpetuated by the left has become so ingrained that even though you and I can logically agree that the VAST majority of taxes in this country come not from the poor or even middle class, but from the wealthy and super-rich. Yet somehow you and I still harbor hard feelings that they should somehow be expected to pay even more than they do. That we resent them for trying to pay less than they already are.

      Unfortunately, the gov’t doesn’t place greater weight on it’s collected revenue. What I mean is, $10,000 of income taxes from you or I will buy just as much (or little) as $10,000 collected from a multi-millionaire. So, even though $10,000 from you or I might be burdensome to us, it’s trivial to the gov’t. Likewise, perhaps the 400K that some rich guy is paying might be trivial to him (though i doubt it), it’s hugely important to the govt.

      Whereas you’re tax dollars and mine are probably just covering our usage of the federal system (unless you’re rich, and if you are, congrats, you’ve probably worked hard for it), that rich guys tax dollars are going to support the usage of 40 people.

    4. A few quick thoughts. I suspect more research will be in order as the data posted above is starting to seem misleading to me. Why? Because its only federal income taxes impacting those numbers.

      It seems to me that a significant part of the struggle in politics revolves around defining the terms of the debate. The pro-progressive taxers won the most recent battle, somewhere between 2002 and 2004, by defining the Bush tax cuts as “tax cuts for the rich.”

      But I think that anti-progressive taxers frame the debate if you look only at federal income taxes.

      These numbers are rough, but for 2007, in a $13.7 trillion economy, total government spending was about $4.8 trillion.

      Federal: $2.2 trillion
      Federal transfer to states: $466 billion
      State: $1.2 trillion
      Local: $1.5 trillion

      State and local taxes tend to be far less progressive. Half of federal spending is on mandatory social welfare programs which are paid for out of the 12.4% social security tax that currently cuts out somewhere above $100,000.

      Seventy-five percent, give or take, of governmental revenue comes from these minimally progressive sources. The other twenty-five percent comes from the highly progressive federal income tax (and borrowing).

      Sales tax in Chicago is 10.25%.
      Illinois has a flat 3% income tax.
      Social security is a flat 12.4%
      I’m going to peg property taxes at about 5% of income.

      Thus, before we even get to federal income taxes, we’re looking at a 30% tax rate. That’s a really rough calculation, but I bet its a legitimate guess. With that in mind, let’s look at the combined tax rates:

      Top 1%: 52.79%
      Top 2-5%: 47.48%
      Top 6-10%: 42.60%
      Top 11-25%: 39.36%
      Top 25-50%: 37.01%
      Bottom 50%: 33.01%

      Let’s take social welfare taxes out of that calculation. Safety-net payments go to the bottom percentiles and we’ll all get our social security payments back.

      Top 1%: 40.4%
      Top 2-5%: 35.1%
      Top 6-10%: 30.2%
      Top 11-25%: 27.0%
      Top 25-50%: 24.6%
      Bottom 50%: 20.6%

    5. Also, I found a stat relevant to a comment in the initial post.

      “During 2006, Tax Foundation economists estimate that roughly 43.4 million tax returns, representing 91 million individuals, will face a zero or negative tax liability. That’s out of a total of 136 million federal tax returns that will be filed. Adding to this figure the 15 million households and individuals who file no tax return at all, roughly 121 million Americans—or 41 percent of the U.S. population—will be completely outside the federal income tax system in 2006.1 This total includes those who pay no tax, and those who pay some tax upfront and are later refunded the full amount of the tax paid or more.”

      http://www.taxfoundation.org/research/show/1410.html

    6. State and Local Taxes, as a percentage of per capita revenue: by State.

    7. Throughout history, poverty is the normal condition of man. Advances which permit this norm to be exceeded — here and there, now and then — are the work of an extremely small minority, frequently despised, often condemned, and almost always opposed by all right-thinking people. Whenever this tiny minority is kept from creating, or (as sometimes happens) is driven out of a society, the people then slip back into abject poverty.

      This is known as “bad luck.”
      — Robert Heinlein

    8. I believe that if you want something bad enough, work doesn’t hurt. We are an entitlement mentality society. Before I retired I was a Union member and when lay offs threatened, some wanted to change the basis for layoffs from a seniority based program. I said then and I would say now. I worked to get to the place that gave me seniority and I would not give up a single day, hour or minute. I worked I earned the right to maintain my place in the work force.
      We don’t need give aways. We need responsible decisions in government to lead us. Give the people the ideas and stay out of our way. We went from prop planes to the space shuttles in my 64 year life time. The Government can’t do it, but good industrious American know how can.

    9. This link updates the Congressional Budget Office’s (CBO’s) estimates of historical effective tax rates —that is, households’ tax liability divided by their income—for various income categories.

      In 2006, the overall effective federal tax rate was 20.7 percent (see Table 1). Individual income taxes, the largest component, were 9.1 percent of household income. Payroll taxes were the next largest source, with an effective tax rate of 7.5 percent. Corporate income taxes and excise taxes were smaller, with effective tax rates of 3.4 percent and 0.7 percent.

      Also see: Data on the Distribution of Federal Taxes and Household Income

    10. Do you know if those tax rate calculations take into account, the ss and medicare tax paid, its not true the the lowest earners pay no federal tax if they are paying employemnt taxes. Those earning higher income only pay that tax on a portion of thier income. What are the % of total fed tax paid to total income?

    11. You should note how misleading it is to merely include the top 1%. The real question about raising taxes has nothing to do with raising “income taxes”, but rather adjusting capital gains. Currently the top .1% (who pay a very large amount of taxes in $$$ pay an average tax rate of right around 15%. They make all of their earnings in stock (no wage) and hence just pay a 15% capital gains tax. That’s ridiculous. There’s a large fraction of the top 1% that’s paying 35% on their income–because they don’t earn all of their income through stocks, but rather through wages by working.

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