NCPA - National Center for Policy Analysis

Growth Of Average Federal Income Tax Rates

March 5, 2001

New studies from the Census Bureau and Congressional Budget Office support the view that federal income taxes are too high.

According to the Census Bureau, the average federal income tax rate hit 15.9 percent of household income in 1999, well above the next highest rate ever recorded, 15.3 percent in 1980 (see figure).

For median income families (those in the middle of the income distribution):

  • In 1993, this family had a before-tax income of $31,241, after-tax income of $26,112, and paid $5,162 in taxes, yielding a tax rate of 16.4 percent.
  • In 1999, the median household had a before-tax income of $40,816, after-tax income of $33,676, and paid $7,140 in total taxes, for an effective tax rate of 17.5 percent.

Because income tax rates rise with income, economic growth causes federal taxes to rise faster than income. According to the CBO, between 1995 and 1998 individual income taxes rose by $141 billion more than they would if taxes had only grown as fast as the economy. This real bracket-creep also means those with upper incomes have borne most of the increase.

  • According to the CBO, those in the top 20 percent (quintile) of the income distribution now pay 78 percent of all federal income taxes.
  • On average, they pay 27.9 percent in combined federal income, corporate, payroll and excise taxes.
  • This works out to almost $46,000 per household, on an average income of $164,000.

These heavy taxes have an important impact on the distribution of after-tax income. Census Bureau after-tax data show:

  • In 1999, the top 5 percent of households got 21.5 percent of total income before-tax, but just 17.1 percent after-tax.
  • Those in the top quintile saw their share of total income reduced from 49.4 percent to 44.1 percent.

Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, March 5, 2001.


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