The CBO has recently updated its data on federal tax rates. The federal tax system is generally progressive — that is, average tax rates generally rise with income. Households in the bottom fifth of the income distribution (with average income of $18,400, under a broad definition of income) paid 4.0% of their income in federal taxes in 2007 (the most recent year for which this data is available). The middle quintile, with average income of $64,500, paid 14.3% of that income in taxes, and the highest quintile, with average income of $264,700, paid 25.1%. The highest quintile also earned 55.9% of pretax income and paid 68.9% of federal taxes. In all other quintiles, the share of federal taxes was less than the income share. The bottom quintile earned 4.0% of income and paid 0.8% percent of taxes, and the middle quintile earned 13.1% of income and paid 9.2% of taxes. However, so-called “social insurance” tax rates rise gradually across most of the income distribution, but falling for the top quintile because, for example, Social Security tax is only collected (in 2010) on the first $106,800 of income. Yet these social insurance taxes pose the greatest liability for all quintiles except the highest, for which the individual income tax is larger. Moreover, the very top of the top quintile(not reflected by this data) pays a lower percentage in taxes due to the impact of a capital gains tax rate that is lower than nearly all federal income tax brackets. It should also be noted that state and local taxes (most particularly sales taxes) may make the U.S. tax system as a whole significantly less progressive.
Who Pays What?