Effective Federal Tax Rates, 1979-2001

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Just in time for tax filing deadlines comes some fascinating data from the Congressional Budget Office about "effective federal tax rates" (that is, guesstimates of how much people pay in "income taxes, corporate income taxes, payroll taxes, and excise taxes–as well as the total effective rate for the four taxes combined").

Go here for charts that break it down in many different ways.

Some quick highlights: The top 1 percent of taxpayers had an effective federal tax rate of 37 percent in 1979 and 33 percent in 2001 and the top 20 percent of taxpayers came in at 27.5 percent and 26.8 percent over the same time frame.

The bottom income quintile effective tax rates dropped from 8 percent in '79 to 5.4 percent in 2001 and the middle-income quintile saw its rate go from 18.6 percent to 15.2 percent.

Overall, the total effective federal tax rate dropped from 22.2 percent to 21.5 percent between 1979 to 2001, after peaking at 23.1 percent in 2000.

When looking at only federal income tax rates, here are some relevant numbers. In 1979, the top 1 percent of income earners paid a rate of 21.8 percent; in 2001, that figure was 24.1 percent. The highest years in this timespan were 1996 and 2000, during which the super-rich had a 24.2 percent rate.

The top income quintile rate over the same time frame climbed from 15.7 percent to 16.3 percent, while the average effective rate for all taxpayers declined from 11 percent to 10.4 percent. And those in the lowest income quintile went from an effective rate of 0 percent in 1979 to -5.6 percent.

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  1. Or a flat tax.

  2. >>

    Isn’t it Jor El?

  3. Joe, what the hell are you talking about?

    What he’s saying is that we shouldn’t move towards financial responsibility in the federal government because of the greed and incompetence of the state governments. We should just accept them for what they are and increase the size of the federal government to compensate.

    Because as we all know, when a complex system is failing, the best possible solution is to make it more complex to compensate, not discretize the system or anything.

    The above is purely sarcasm, of course.

  4. SL:
    Okay. From your posts I would not describe you as a Libertarian, so… I know: different cultures, different ways of how politics manifest themselves. And you are right, I was not makeing any parallels between Your arguments and the general comment. It was just something that had been mentioned earlier. And here in Vienna, looking at the reduced tax and government burdeon in the US is enough to make one drool.

    Anus:
    I stand corrected. It has been years since Superman was around.

  5. Ahhh, only on the internet can you respond to someone by calling them “anus” without a breakdown in civility.

  6. Ayatollah, you don’t actually believe poor people don’t pay taxes, do you?

    Sales taxes. Meal taxes. Property taxes. Gas taxes. Payroll taxes. Not to mention the variety of fees levied by various governments. All of which end up being quite regressive.

    Funny how “anti-tax” advocates, Grover Norquist being a good example, save up all their fury for that tax that falls most heavily upon the wealthy.

  7. joe,

    my property taxes did go up by a very small amount – again due to a new school construction. we didn’t have police layoffs. it is not the damn Fed govt responsibility to have cops on my street!

    Even if my local taxes went up by 10% and Fed taxes went down by 10%, I would take it – since the goal should be local control/power.

    poor people may be paying some taxes, but not their FAIR SHARE of taxes 🙂

  8. Funny how “anti-tax” advocates

    joe, I think you and those like you confuse “anti-tax” with “anti-old fucks hundreds or thousands of miles away wasting a third of my income on hookers, family vacations, and pork”

    Big difference. Being anti-tax (and not an anarchist) is just greed. Being anti-big federal government tax is recognizing that we pay too much money for a service that sucks and is easily and more effectively reproducible in a local setting.

  9. I mean “produced” in a local setting.

  10. rst, payroll taxes (falling heavily on the working poor) aren’t spent by “old fucks hundreds or thousands of miles away wasting a third of my income on hookers, family vacations, and pork?”

    Grover Norquist has compared the progressive income tax to “something out of Nazi Germany,” but is on the record opposing lowering the payroll tax.

  11. Ah, I see no comments at all!

    Nick Gillespie should not waste his time on such trivial matters as taxes (which ultimately relate to government size).

    Reason writers should just find something to bitch about Bush’s war on terror, so readers can dump on without having to think.

    By the way, lowering the taxes across the board is the second reason I can support Bush for 2004.

  12. Seen your property taxes lately, z? A tax increase, and a particularly regressive one at that, has hit American families as a result of Bush’s economic policies.

  13. Joe,
    So the failure of local government to curb their appetite for our money is Bush’s fault? I think you must have gone to a government school. Try thinking before talking. It really works.

  14. Those numbers sound great, but they omit two important details that I would like to see added in. First, those numbers do not included other payroll taxes which, for people at lower incomes can often meet or exceed ther federal income tax bill. In addition, I’d like to see the change in purchasing power over that time period for each group. Frankly, IMO, the drop for the wealthiest 1% is inexcusable when the poorest rates are still taking a huge chunk of their meager incomes. But, then, I’m a liberal dem w/ a libertarian social streak.

  15. Those numbers sound great, but they omit two important details that I would like to see added in. First, those numbers do not included other payroll taxes which, for people at lower incomes can often meet or exceed ther federal income tax bill. In addition, I’d like to see the change in purchasing power over that time period for each group. Frankly, IMO, the drop for the wealthiest 1% is inexcusable when the poorest rates are still taking a huge chunk of their meager incomes. But, then, I’m a liberal dem w/ a libertarian social streak.

  16. I have this crazy idea, Jack, that easily predictable consequences should be taken into account when evaluating a policy.

    Maybe it’s a Democrat thing.

  17. The other tax story over this time frame is that the total tax burden became much more “progressive” (the wealthy paying a greater share) over the same time period.

    Historically, high marginal rates have made the effective tax rate and tax burden less progressive not more. Boosting the top rate will bring in more income initially but over a period of years it will fail as the wealthy change their behavior to avoid taxes or lobby for loopholes that only they can exploit. That is what happened in the 70’s when the tax code grew so baroque that for three years Malcom Forbes, then the richest man in America, paid no income taxes at all.

    People who argue for higher tax rates on the wealthy do so for emotional reasons, not from any empirical evidence that it produces a more progressive and effective tax system.

  18. AdamDC,

    According to the CBO, the total effective tax rates figure do include payroll taxes.

  19. Shannon Love,

    Both Liberals and COnservatives use emotional appeals when arguing for their points of view. The “it’s for the children” or the “a non-metabolically independent entity” is a human life. Or “SH gassed his own people” or the oft cited never proven “paper shredders”. Since you are a Conservative, I know you are well versed on the Left wing emotional appeals. But I would also guess that you do realize that the cliche that Conservatives do not argue from emotion is wrong.

    Zor El,

    Congratulations on the power of your Son and your foresight to send him to Earth.

    Generally tax rates and size/intrusiveness of government do go hand in hand, but what the US has at present is tax cuts (good) with rampant spending and growing of size and scope and intrusiveness of government (bad). The US is starting to resemble a European government!

    Cutting taxes and spending and reducing the size and intrusiveness of government is a fine Liberal goal. Pity that there are now no current Governments that really work for that.

    regards,
    KK

  20. I have this crazy idea, Jack, that easily predictable consequences should be taken into account when evaluating a policy.

    Joe, what the hell are you talking about?

  21. Joe,

    My property taxes did not increase because my local and state governments cut spending during the recession instead of raising taxes. Blaming Bush for you own localities lack of fiscal discipline is childish. Besides, federal spending to localities for schools, roads etc did not decrease under the Bush budgets (unfortunately). He borrowed money to cover the loss revenues from taxes. If your local governments blamed federal spending cuts for higher taxes they are lying.

    Your argument about payroll taxes is also not supported by the facts. Although the lower quintiles pay more in payroll taxes than income taxes even that share has remained flat or decreased.

    I suspect the biggest bite out of lower income paychecks has come from increase insurance cost i.e. health insurance, worker comp, unemployment etc. Money that employers pay out for those benefits is money that doesn’t make it into employees pocket or the tax statistics.

  22. joe,
    My property taxes increased less than 1.5% this year. Considering that they’re building a beautiful, brand new elementary school that my two sons will attend, I think that’s a pretty good deal.

    Maybe you just live in an area that isn’t as well governed as where I live, in Florida.

    AdamDC,
    Look again at the tables. Seems as if you’re liberal dem with a reading comprehension problem streak.

  23. Shannon, you just made a good case against loopholes, but not progressive taxation.

    An important factor is that the country is a lot richer than it was in 1979. If the fourth quintile has the (material) quality of life today that the third quintile had in 1979, but their level of taxation has barely budged, I’d count that as progress, not status quo.

  24. Bush did cut the COPS program, requiring my local government to either lay off police, or raise taxes.

    But the major way this has worked is by requiring states to pay for things formerly covered by the feds, which has reduced state aid to localities in my neck of the woods. Though lower tax receipts at the local and state level played a part in this reduction, so did the reduction in federal aid.

    BTW, my local government did lay off cops. And did slash the parks budget, including not opening pools in the summer. And taxes still went up.

  25. KK,

    “Both Liberals and COnservatives use emotional appeals when arguing for their points of view.”

    True but irrelevant as a did not make any argument comparing Liberals to Conservatives. I restricted my observation to those that argued for higher nominal tax rates on the wealthy. Many liberals (leftist) do reflexively support such proposals without questioning whether they will actually accomplish the stated goals of making the wealthy assume a greater proportion of the tax burden but this has no linkage to whether Conservatives make the same type of mistake in other areas.

    “Since you are a Conservative”

    I am not. I am merely not a leftist. This makes me appear to be a conservative to those who view political issues from the left.

  26. My $15 local phone bill costs me $26. I get to involuntarily contribute to phones for the deaf, phone service for the poor, phone service for the deaf poor, fees to offset lost revenue suffered by the former big monopoly when the baby monopolies took over, fees to fund the perpetually insolvent 911 system, fees to reimburse the Future Fee Committee, and a new one that I can’t prove but I suspect is used to finance a boob job for the CEO’s mistress.

    Not that I’m complaining.

  27. One other critique of these numbers is the difference between current tax and deferred tax. These numbers measure what we pay today, but ignore what we must pay later. Since government spends more than it collects, that too is a tax which is currently borrowed, but must be paid one day.

    Democracy is at risk when 50% of the taxpayers pay almost none of the tax, and government acts without any limits upon its reach. I forget who said that a proposal to rob Peter to pay Paul can usually count on Paul’s support. We need a tax system that taxes all, including the poor, so that we are all in this together, and any government spending is felt be everyone.

  28. http://www.azcentral.com/news/articles/0402corporatetaxes-ON.html

    Meanwhile, this and other stories point out that over half of all US companies paid NO income tax whatsoever in the late 90s, and not much more since then. THIS is why the middle-class has such high taxes: not because of food stamps or the Earned Income Tax Credit or public works projects, but because when I was in graduate school, living the stereotypical “starving student” lifestyle, I paid more in taxes each year than fucking Halliburton.

    Put me in charge for six months. Here’s my plan: Flat tax: fifteen percent for individuals, twenty percent for businesses and corporations. BUT, personal and business income is tax-free for the first thrity grand per year, plus an extra ten-thousand-dollar deductible for each dependent you have.

    And that’s it. No loopholes, no tax shelters, no deductible business lunches, no forty-thousand-page tax laws passed by Congress. I have no problem with human Welfare programs, but corporate welfare pisses me off.

    http://www.azcentral.com/news/articles/0402corporatetaxes-ON.html

  29. “lowering the taxes across the board is the second reason I can support Bush for 2004.”

    Although not as deleterious as higher taxes, deficits do harm as well, either via inflation or a crowding out in the credit markets. (both of these can be delayed effects) This is the main reason why I think that it’s far more important the Republicans do well in the congressional races since they tend to be far more frugal than the Dems for total government spending: http://www.ntu.org/misc_items/rating/VS_2003.pdf

    Taxes harm the creation of goods and services and peoples ability to afford them. The higher the taxation levels, the worse the harm.

    Karl:

    “Cutting taxes and spending and reducing the size and intrusiveness of government is a fine Liberal goal. Pity that there are now no current Governments that really work for that.”

    Right. We need to make it politically important for them to work toward that goal.

    Shannon Love:

    ” my local and state governments cut spending during the recession instead of raising taxes.”

    That’s good. It’s my understanding that Colorado is one of the few states to practice such a wise approach.

    “Sales taxes. Meal taxes. Property taxes. Gas taxes. Payroll taxes. Not to mention the variety of fees levied by various governments. All of which end up being quite regressive.”

    Oh oh. joe’s not talking about foreign policy and he wrote something that I really agree with. Either there’s been a rip in the fabric of space-time or I’m getting really sleepy. (Both?)

  30. Actually, joe writes a lot of things I agree with from time to time….not so many of them concerning economics….but hey; it was late at night…forgive me.

  31. In a very real way, taxation is theft. It is theft via the mechanism of democracy. When theft is legal and mandatory, it is especially barbaric. It seems that the goal of all those who love liberty should be to ultimately eliminate this barbarity as a violation of basic individual liberty.

    Slavery is a similar, but not as total a violation of liberty. We countenance no arguments for the legalization of slavery. If and when we come to reject taxation in the same way, society will, no doubt be less contentious and more prosperous, and by definition, much freer.

  32. joe’s whining over the COPS program may be predictable, but is unwarranted. When Clinton first proposed it, it was pointed out that there wasn’t any funding planned for the out-years. It was always designed as a Cunning Plan by which the law enforcement could get a quick bump in the ranks at the Feds’ expense. Then, when the funding ran out, state and local officials would be too scared of appearing “soft on crime” to layoff the added officers, and would find the funds locally to keep them on. A perfect example of how more government is supposed to beget more government.

    Oh, and Jor-El was Clark (Kal-El) Kent’s biological Dad. His brother Zor-El was Linda Lee (Kara) Danvers’ parental unit. Depending on which retcon is in effect, she was/is/will be/will have been Supergirl.

    I wonder if Argo City residents paid higher taxes than citizens of Kryptonopolis? Spaceworthy domes ain’t cheap.

    Kevin

  33. …Of course I meant: “Slavery is a similar, but total, violation of liberty.”

  34. Jennifer wrote: “Meanwhile, this and other stories point out that over half of all US companies paid NO income tax whatsoever in the late 90s, and not much more since then. THIS is why the middle-class has such high taxes: not because of food stamps or the Earned Income Tax Credit or public works projects. . .”

    Except that the same sources also show a general increase in the dollar amount paid in corporate income taxes, despite the fact that a sizeable portion of those corporations paid little or not tax.

    Could it be, in the dot.com rush of the late 1990s, you had a lot of new, promising, hopeful companies that weren’t actually turning a profit, and thus were not liable for corporate income tax payments? I’m sure I read something about that somewhere.

    Before you vent your spleen, Jennifer, about those vile, evil corporations getting a free ride, perhaps you should look at the actual numbers involved. I’m sure the new CBO stuff has something like that lying around.

    Mind you, I admit I say this from the perspective of someone that believes that corporations should pay almost no income tax what-so-ever. [cost-added tax, passed on to consumers, etc etc etc]

    –ME

  35. Hopefully its not too late to address Jenifer. The reason so many corporations pay no tax is the same reason so many fail: there is a bias against equity ownership in our tax system, called the double taxation of dividends.

    A corporation can deduct interest expense but not dividends paid. The incentive is to be highly leveraged, but being so leveraged makes it harder for corporations to weather hard times.

    Make dividends tax free to the recipient, or deductible to the corporation, and dividends and interest will be on equal footing, and headlines about corporations paying no tax would be answered with a collective “duh.”

    Before you cane me, I am against taxation, and ideally none would exist, but as a starting point, let’s get rid of double taxation.

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