NCPA - National Center for Policy Analysis

"Distributional Analyses" Of Tax Burdens Are Misleading

July 19, 2000

Tax debates frequently center on "distributional analyses" produced by the U.S. Treasury Department. These analyses show the distribution of tax liabilities and benefits from tax cuts or increases among taxpayers grouped by income quintiles (fifths). However, a study by the Joint Economic Committee claims these data can be misleading, because there is not an even distribution of incomes. For instance, many Americans claim no tax liability and thus current measurements overstate the tax liability for the average taxpayer in each income group.

The study looked at the five quintiles (with the first quintile being the poorest fifth of Americans and the fifth quintile being the richest fifth of Americans) and determined:

  • More than 22 percent of all 1995 tax returns claimed zero tax liability.
  • The Joint Committee on Taxation estimates that in 2000, 48.7 million taxpayers out of 140.2 million taxpayers, or 34.7 percent, will have zero or negative tax liability.
  • In four out of the five income groups examined, a majority of taxpayers had tax liabilities that were either 25 percent greater or lesser than the average.

Many taxpayers in lower quintiles can end up paying more than those in higher quintiles.

  • Approximately 2.2 million taxpayers in the third quintile pay more in federal income taxes than 5.4 million taxpayers classified in the fourth quintile.
  • Over 3 million taxpayers in the fourth quintile pay more in federal income taxes than 4.1 million taxpayers classified in the fifth quintile.

The study recommends that Congress stop using these distributional tax tables and averages to determine and communicate tax policy, because they are so misleading.

Source: "A Guide To Tax Policy Analysis: The Central Tendency of Federal Income Tax Liabilities in Distributional Analysis," May 2000, Joint Economic Committee of Congress, Washington, D.C.


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