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The U.S. Income Tax Burden:

An Analysis of Congressional Budget Office (CBO) Numbers

by Sugi Sorensen and Stephen Cobb
Last Revised: 17-Apr-2000

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Table of Contents:

  1. Introduction
  2. Who Pays Income Taxes?
  3. How to Interpret These Numbers...
  4. The Federal Tax Burden...
  5. Who is in These Income Brackets?
  6. How Much Do They Make?
  7. How Much Wealth Do They Have?

Introduction

Below is an analysis of Congressional Budget Office (CB0) report entitled "Preliminary Estimates of Effective Tax Rates" (07-Sep-1999). The raw numbers can be scrutinized here:
http://www.cbo.gov/showdoc.cfm?index=1545&from=4&sequence=0
All I did was try to make heads or tails of the data by plotting it and extracting the most salient data. The Income Tax Burden is defined simply as who pays U.S. income taxes in the form of individual and corporate income taxes, payroll taxes, and federal excise taxes. Based on this information, the following conclusions clearly emerge:
  • An enormous percentage of taxes are payed by a minority of Americans:
    • The Top 1% of taxpayers pay 29% of all taxes.
    • The Top 5% of taxpayers pay 50% of all taxes.
  • Our tax system is not so much progressive as it is confiscatory -- Frederic Bastiat called this phenomenon "legal plunder." A progressive tax is based on the premise that those with more income can afford to pay more taxes, and conversely, those with little or no income should pay no tax. However, a quick look at Graph 1A below shows that the U.S. tax system has become far beyond progressive. Fully half the taxpayers contribute almost nothing in individual income taxes.
  • The Top 1% of income earners (comprising about 1 million families) earn about 15% of the total income earned by all wage earners in the United States, yet they pay almost 30% of all individual income taxes.
  • Furthermore, the Top 1% are shouldering a roughly 50% higher proportion of the overall income tax burden than they did in 1977.
  • The argument most oft used against tax breaks are that they benefit only the wealthy. It is clear from even a cursory look at the numbers below that the 'wealthy' will receive the majority of any income tax reduction because they pay a disproportionately huge percentage of the income taxes! To structure a tax break such that those in upper income brackets are excluded would constitute nothing more than transfer of wealth from those who have it to those who don't (i.e. legal plunder.)

Who Pays Income Taxes?


Cumulative Percentage of Individual Income Tax Paid
(1999 Estimated)
Graph 1A 		Graph 1 - Legend
Graph 1A: Cumulative Percentage of Individual Income Tax Paid (1999 Estimated.)
 		 
Income Tax Burden (1977 - 1995)
Graph 1B 		Graph 1 - Legend
Graph 1B: Share of Individual Income Tax from 1977 to 1995.
 		 

1999 (Projected) Income Tax Burden
Graph 1C Graph 1 - Legend
Graph 1C: The tax burden. Projected income tax burden for 1999.

Raw Data: Share of Individual Income Tax (in %)

Income Category 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1999
(Projected)
Highest 20% 68 67 66 68 68 72 72 72 75 77 79
Fourth 20% 20 20 20 20 19 18 17 18 17 16 16
Middle 20% 10 10 10 10 9 8 9 9 8 8 7
Second 20% 3 4 4 3 3 3 3 2 2 1 1
Lowest 20% 0 0 0 0 0 0 -1 -1 -1 -2 -2
All Families 100 100 100 100 100 100 100 100 100 100 100
 
Top 1% 20 19 17 20 21 24 24 23 27 29 29
Top 5% 38 37 36 38 39 43 44 42 46 49 50
Top 10% 50 50 49 51 52 56 56 55 59 61 63

Source: Congressional Budget Office, "Preliminary Estimates of Effective Tax Rates" (September 7, 1999)
http://www.cbo.gov/showdoc.cfm?index=1545&from=4&sequence=0

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How to Interpret These Numbers

The Federal Government collects copious amounts of data on Americans. In particular, the Internal Revenue Service, the Census Bureau, and the Bureau of Labor Statistics compiles yearly data on wage earners in the U.S. The CBO, in turn, crunches these numbers through their statistical models. What emergers is analysis of the tax burden in the U.S. Wage earners are broken down into quintiles, or income brackets by 20% increments. There are roughly equal numbers of people in each quintile. Thus the Top Quntile refers to the top 20% of wage earners in the U.S. You can see how the Federal Government determines who fits in each quintile here.

The Congressional Budget Office (CBO) further breaks down the income brackets by the Top 1%, the Top 5%, and the Top 10% of wage earners. These brackets are overlapping and obviously are but a further analysis of the Top Quintile of wage earners.

Definitions:

Pre-tax Family Income is the sum of wages, salaries, self-employment income, rents, taxable and nontaxable interest, dividends, realized capital gains, and all cash transfer payments. Income also includes the corporate income tax and the employer share of Social Security and federal unemployment insurance payroll taxes. For purposes of ranking by adjusted family income, income for each family is divided by the poverty threshold for a family of that size. Quintiles contain equal numbers of people. Families with zero or negative income are excluded from the lowest income category but are included in the total.

Income Tax Burden includes individual and corporate income taxes, payroll taxes, and excise taxes. Individual income taxes are distributed directly to families paying those taxes. Payroll taxes are distributed to families paying those taxes directly, or indirectly through their employers. Federal excise taxes are distributed to families according to their consumption of the taxed good or service. Corporate income taxes are distributed to families according to their share of capital income.

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The Federal Tax Burden...

Cumulative Percentage Federal Taxes Paid 1999 (Projected)
Graph 2 		Graph 1 - Legend
Graph 2: Cumulative Percentage Federal Taxes Paid 1999 (Projected).  

Share of Total Federal Taxes (in %)

Income Category 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1999
(Projected)
Highest 20% 59 58 58 58 57 60 60 60 61 64 65
Fourth 20% 20 21 22 22 21 21 20 21 20 19 19
Middle 20% 13 13 13 13 13 12 12 12 12 11 11
Second 20% 7 7 6 6 7 6 6 6 5 5 5
Lowest 20% 2 2 1 1 2 2 1 1 1 1 1
All Families 100 100 100 100 100 100 100 100 100 100 100
 
Top 1% 16 16 13 14 15 16 17 16 18 20 21
Top 5% 32 31 29 29 29 32 32 31 34 36 37
Top 10% 43 42 41 41 41 43 44 43 45 48 49

Source: Congressional Budget Office, "Preliminary Estimates of Effective Tax Rates" (September 7, 1999)
http://www.cbo.gov/showdoc.cfm?index=1545&from=4&sequence=0

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Who is in These Income Brackets?

Number of Families in United States by Income Bracket (in millions)

Income Category 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1999
(Projected)
Highest 20% 17.4 18.2 19.1 19.6 20.0 20.3 21.1 21.4 21.7 22.2 23.6
Fourth 20% 15.6 16.5 17.4 17.8 18.7 19.3 19.9 20.5 20.9 21.2 22.6
Middle 20% 14.7 16.0 16.6 17.5 18.3 18.9 19.6 20.4 21.2 21.2 22.5
Second 20% 15.2 16.7 17.2 18.1 18.6 19.5 20.5 20.8 21.3 21.8 23.3
Lowest 20% 16.7 17.6 17.6 17.1 18.5 19.4 19.5 19.9 20.2 21.2 22.7
All Families 80.4 86.1 89.3 91.8 95.7 98.7 102.1 104.7 107.2 109.6 116.8
 
Top 1% 0.9 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.0 1.2
Top 5% 4.5 4.6 5.0 5.1 5.1 5.2 5.4 5.4 5.5 5.6 5.9
Top 10% 8.8 9.3 9.8 10.1 10.2 10.4 10.6 10.9 10.9 11.3 11.9

Source: Congressional Budget Office, "Preliminary Estimates of Effective Tax Rates" (September 7, 1999)
http://www.cbo.gov/showdoc.cfm?index=1545&from=4&sequence=0

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How Much Do They Make?

Average Pre-Tax Family Income (in 1995 US Dollars)

Income Category 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1999
(Projected)
Highest 20% $94,300 $98,300 $95,900 $99,500 $109,000 $113,000 $118,000 $111,000 $114,000 $120,000 $132,000
Fourth 20% $49,300 $50,400 $48,400 $48,000 $49,600 $51,100 $50,900 $49,300 $49,000 $49,600 $53,000
Middle 20% $36,400 $36,200 $34,600 $32,800 $34,200 $34,900 $35,000 $33,600 $32,300 $33,300 $35,400
Second 20% $23,700 $23,200 $21,700 $19,800 $21,300 $21,600 $21,400 $20,600 $19,600 $20,100 $21,200
Lowest 20% $10,000 $9,600 $8,900 $8,100 $8,700 $8,700 $9,000 $8,400 $7,800 $8,100 $8,400
All Families $42,900 $43,500 $42,000 $42,000 $44,500 $45,800 $46,800 $44,600 $44,100 $45,700 $49,500
 
Top 1% $356,000 $389,000 $367,000 $435,000 $524,000 $544,000 $635,000 $547,000 $584,000 $660,000 $719,000
Top 5% $166,000 $179,000 $168,000 $182,000 $207,000 $216,000 $236,000 $217,000 $225,000 $244,000 $276,000
Top 10% $125,000 $130,000 $125,000 $132,000 $148,000 $153,000 $166,000 $153,000 $158,000 $168,000 $188,000

Source: Congressional Budget Office, "Preliminary Estimates of Effective Tax Rates" (September 7, 1999)
http://www.cbo.gov/showdoc.cfm?index=1545&from=4&sequence=0

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How Much Wealth Do They Have?

Share of Total Family Income (in %)

Income Category 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1999
(Projected)
Highest 20% 47 48 49 50 51 51 52 51 52 53 54
Fourth 20% 22 22 22 22 22 22 21 22 22 21 21
Middle 20% 16 15 15 15 15 15 14 15 15 14 14
Second 20% 10 10 10 9 9 9 9 9 9 9 9
Lowest 20% 5 5 4 4 4 4 4 4 3 3 3
All Families 100 100 100 100 100 100 100 100 100 100 100
 
Top 1% 9 10 10 11 12 12 13 12 13 14 15
Top 5% 22 22 22 24 25 25 27 25 26 27 28
Top 10% 32 32 33 35 35 35 37 36 37 38 39

Source: Congressional Budget Office, "Preliminary Estimates of Effective Tax Rates" (September 7, 1999)
http://www.cbo.gov/showdoc.cfm?index=1545&from=4&sequence=0

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