The Congressional Budget Office yesterday released Historical Effective Federal Tax Rates: 1979 to 2006 and Data on the Distribution of Federal Taxes and Household Income. From the Director's Blog:
- The overall effective federal tax rate (the ratio of federal taxes to household income) was 20.7% in 2006. Individual income taxes, the largest component, were 9.1% of household income. Payroll taxes were the next largest source, with an effective tax rate of 7.5%. Corporate income taxes and excise taxes were smaller, with effective tax rates of 3.4% and 0.7%.
- The overall federal tax system is progressive—that is, effective tax rates generally rise with income. Households in the bottom fifth of the income distribution paid 4.3% of their income in federal taxes, while the middle quintile paid 14.2%, and the highest quintile paid 25.8%. Average rates continued to rise within the top quintile, with the top 1% facing an effective rate of 31.2%.
- Higher-income groups pay a disproportionate share of federal taxes because they earn a disproportionate share of pretax income and because effective tax rates rise with income. In 2006, the highest quintile earned 55.7% of pretax income and paid 69.3% of federal taxes, while the top 1% of households earned 18.8% of income and paid 28.3% of taxes. In all other quintiles, the share of federal taxes was less than the income share. The bottom quintile earned 3.9% of income and paid 0.8% of taxes, while the middle quintile earned 13.2% of income and paid 9.1% of taxes.



