The Growing Progressivity of the U.S. Income Tax
By Mel Fabrikant Thursday, October 24, 2013, 05:06 PM EDT
New Book Dispels Misconceptions about U.S. Tax Code
Taxpayers spend upwards of 7 billion work hours and $165 billion complying with the increasingly complex income tax code every year. In addition to growing complexity, income tax revenue sources have dramatically changed over the years, with the top 1% now paying double the rate of other taxpayers and about half of all tax filers having no income tax liability, according to a new chart book from the nonpartisan Tax Foundation.
Putting a Face on America’s Tax Returns: A Chart Book illuminates how, despite common misconceptions, the income tax has become more progressive. The top 10 percent of taxpayers now pay more than 70 percent of all income taxes compared to about 55 percent in 1985, while the share paid by the bottom 90 percent of taxpayers has declined by about one third since then.
About half of the nation’s income is reported by taxpayers who make less than $100,000, and half is reported by taxpayers who make more. However, taxpayers who make less than $100,000 collectively pay just 18 percent of all income taxes while those who make more pay over 80 percent of all income taxes.
After deductions and credits, the average income tax rate for all Americans is about 10.4 percent, while the average for those earning above $200,000 is almost double that. The effective income tax rate for Americans making less than $30,000—about half of tax filers—is actually negative due to refundable credits.
“None of these facts on their own tell us which reform options to pursue. But taken together, they present a much clearer picture of the nation’s steeply progressive and highly redistributive federal tax code,” says Tax Foundation President Scott Hodge. “In an environment in which potential tax changes are often evaluated based on how they will affect low-income households, it is essential to keep that picture in mind.”
Putting a Face on America’s Tax Returns is an essential tool for understanding the facts behind redistribution and progressivity in the tax code. Additionally, the chart book discusses:
• The redistribution of wealth through taxes and spending;
• Who benefits from tax loopholes, credits, and deductions;
• The changing demographics of American taxpayers;
• The volatility of income;
• Why individual income taxes affect the majority of businesses;
• Corporate taxes; and
• The economics of tax reform.
Download Putting a Face on America’s Tax Returns: A Chart Book for free on our website and feel free to share and repost the graphics with credit to the Tax Foundation. Print copies available for $10.00—bulk order discounts available.
The Tax Foundation is a nonpartisan research organization that has monitored fiscal policy at the federal, state and local levels since 1937.