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Research desk responds: Tax rates galore!

By Dylan Matthews

theorajones1 asks:

What has happened to tax rates on median income people since 1980?

Compared to everyone else?

Can you do federal, state, and local?

Luckily, the CBO has records (PDF) of effective federal tax rates, broken down by income quintile, going back to 1979:

total_federal_graph.png

Those figures include all federal taxes: individual income, payroll, corporate income, excise, etc. The numbers really gets interesting when you look at individual income and payroll taxes specifically. Here's individual income:

income_federal_graph.png

Interestingly, the Bush tax cuts created a big drop in all groups, while Reagan's affected everyone but the bottom quintile. The Clinton years saw a significant increase in the top quintile and drop in the bottom one. Now here are Social Security and Medicare payroll taxes:

payroll_federal_graph.png

As you can see, the top and bottom quintiles both started at the bottom and then broke apart with the top quintile paying lower rates and the bottom quintile higher ones, while the middle three have been converging. Payroll taxes have always been regressive, and it appears they're growing more so.

As for state and local numbers, the Tax Foundation has calculated average state and local tax burdens since 1977. Unfortunately, they do not provide income quintile breakdowns, but they do show that the average taxpayer's burden has hovered around 10 percent for that period:

state_graph.png

By Ezra Klein  |  June 17, 2010; 10:11 AM ET
Categories:  Taxes  
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Comments

Dylan, a suggestion about graph making -- it's a bit confusing that the order (top to bottom) of the quintiles on the chart is the reverse of the order of the quintiles in the legend -- making them consistent would make the graphic more quickly informative. Perhaps my advice should be directed at CBO, and Dylan is just an intermediary?

Posted by: bdballard | June 17, 2010 10:28 AM | Report abuse

Awesome. Thank you Dylan and Research Desk!

Next question: If we bump everyone's effective tax rate by 5 percentage points, control spending, and reduce medical cost inflation to 5% - in what year would we balance the budget?

And really, would that be so terrible?

Posted by: bswainbank | June 17, 2010 10:51 AM | Report abuse

That is great information that is very informative. Dylan did a great job gathering that.

The tax rates themselves look quite good. I think the policy implications are that much of the existing tax rates should be locked in permanantly so that businesses and individuals can make long term plans based on permanant taxation rates.

However, I still think that the highest income tax rate should be allowed to revert back to its 39.6% rate from 35% as an offset for a corporate tax rate cut to increase American competitiveness in the global marketplace for business.

The earned income tax credit should also be reduced so that no American has an effective negative federal tax rate.

Posted by: lancediverson | June 17, 2010 10:55 AM | Report abuse

this stuff is cbo data, but interesting of course. anyway, calling all payroll taxes obviously "regressive" kinda belies the complexity behind these forced saving/welfare programs. See http://www.economist.com/blogs/freeexchange/2009/04/are_payroll_taxes_regressive for the arguments.

Posted by: stantheman21 | June 17, 2010 12:17 PM | Report abuse

my last post made little sense: i meant to say it is "old news" but is of course interesting

Posted by: stantheman21 | June 17, 2010 12:34 PM | Report abuse

The best source for information on the distribution of state/local taxes is the Institute of Taxation and Economic Policy's report, "Who Pays?"

http://www.itepnet.org/state_reports/whopays.php

Posted by: al444 | June 17, 2010 2:50 PM | Report abuse

Page 3 of the press release has the table you want. State and local taxes are much much more regressive than federal taxes largely because states rely to a much larger extent on sales and excise taxes, which are incredibly regressive.

http://www.itepnet.org/whopays3release.pdf

Posted by: al444 | June 17, 2010 2:52 PM | Report abuse

Who the heck puts their legend in precisely the reverse order of the data -- and then uses two shades of light blue for the top and bottom levels to make it extra hard to reorient things? Interesting content, though.

Posted by: Ulium | June 17, 2010 6:11 PM | Report abuse

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