Who pays? So who pays all these taxes? For 2005, the most recent year for which information is available, IRS data indicate that taxpayers with adjusted gross income (AGI) in the top 1% of the population bore 39% of the total national income tax burden, while those in the top 5%, 10%, 25%, and 50% bore 60%, 70%, 86%, and 97%, respectively, of that burden. Those in the bottom 50% paid a paltry 3%! This proves, in part, the steep progressivity of the income tax system.
Top 1% --> 39%
Top 5% --> 60%
Top 10%--> 70%
Top 25%--> 86%
Top 50% --> 97%
Lower 505 --> 3%
Who pays what?
Effective Individual Tax Rates
Effective individual tax rates measure the percentage of individual income taxes paid by various income groups. A Congressional Budget Office (CBO) study, Historical Effective Tax Rates: 1979 to 2005, reports that for 2005 the bottom quintile's effective individual income tax rate was negative 6.5%, dropping 6.5 percentage points from 0% over the previous 26 years. And the middle class is doing pretty well, too, with an effective individual income tax rate of 3% for 2005, a drop of 60% from the 7.5% it paid 26 years ago. The effective individual income tax rate for the top 20% of income earners has dropped 1.6 percentage points, from 15.7% to 14.1%,
a drop of only 10% over the past 26 years. And the top 1% that some claim pay no tax? Their effective individual income tax rate was 19.4% for 2005, down from the 21.8% rate of
26 years ago.
Effective Federal Tax Rates
The same CBO study examined the effective federal tax rate, which measures the percentage of income, payroll, and excise taxes of all taxpayers. For 2005, the top 20% of all taxpayers had an effective federal tax rate of 25.5%, while the lowest 20% had an effective rate of 4.3%; the middle class paid tax at an effective rate of 14.2%. Further, the top 10% of filers had an effective federal tax rate of 27.4%; the top 5%, a rate of 28.9%; and the top 1%, a whopping 31.2%. Like the IRS statistics, the CBO data indicate that our tax system is quite progressive.
Although all taxpayers have seen a drop in their effective federal tax rate over the last 26 years, who has seen the greatest decrease? CBO numbers reveal that the bottom 20% has seen a 46% decline in their effective federal tax rates. Likewise, the second and middle quintiles saw a decrease of 31% and 24%, respectively. The upper middle class? Their effective federal tax rates decreased only 18%. And the top 20% of income earners? A drop of just 7%.
The Bush Tax Cuts
What about the Bush tax cuts? Since 2000, when Bush entered office, the share of federal tax liabilities borne by the lowest and middle quintiles has decreased, while the share borne by the highest quintile has increased. In 2000, the lowest quintile bore 1.1% of total federal tax liabilities compared with 0.9% in 2004, the year that all of the Bush tax cuts were in effect. Thus, the federal tax liability of the lowest quintile dropped 18%. However, the highest quintile paid 67.2% of these liabilities in 2004, an increase of 1% in their liability since 2000, when they paid 66.6%.