Esenwein, Gregg A.

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Congressional Research Service ˜ The Library of CongressCRS Report for CongressReceived through the CRS WebOrder Code RS20059Updated March 27, 2000Recent Trends in the Federal Tax BurdenGregg A. EsenweinSpecialist in Public FinanceGovernment and Finance DivisionIn FY1999, federal tax revenue measured as a percentage of Gross Domestic Product(GDP) was at a record high level; it is projected to remain at high levels into the future.Yet at the same time, the average federal tax rate within each income group has not risen.That these two seemingly contradictory trends can occur simultaneously is primarily theresult of the rapid income growth concentrated at the high end of  the income distributionwhere marginal income tax rates are at their highest, coupled with tax reductions enactedin the Taxpayer Relief Act of 1997.  This report discusses these trends and will be updatedas newer data become available. Table 1 shows the level of federal tax revenue as a percentage of GDP for selectedfiscal years from 1965 through 2005.   Table 1.  Federal Revenue as a Percentage of Gross Domestic Product(FY1965 - FY1999 actual - FY2000 and FY2005 projections)1965 1970 1975 1980 1985 1990 1995 1999 2000 200517.0% 19.0% 17.9% 18.9% 17.7% 18.0% 18.5% 20.0% 20.3% 19.8%Source: Congressional Budget Office.The primary contributor to the recent growth in overall federal tax revenue has beenthe increase in federal individual income tax receipts.  While the increase in federalindividual income tax receipts can be traced to several factors, the most important  hasbeen the across-the-board increase in real incomes which has put proportionately moreincome into the higher marginal income tax brackets.Of  greatest significance has been the rapid growth in income concentrated at the highend of the income spectrum, where marginal income tax rates are the highest.  Table 2shows the change in the shares of adjusted gross income (AGI) and taxes for high incometaxpayers in 1993, 1997,  and 1998.The data in table 2 indicate that the share of AGI accruing to high income taxpayersgrew dramatically between 1993 and 1998.  Taxpayers with AGIs in excess of $200,000saw their share of AGI increase from 14% to over 21% of the total while taxpayers withAGIs in excess of $1 million experienced an increase from close to 5% to over 9% of totalAGI.  As high income taxpayers' share of total AGI increased so did their share of totalCRS-2Table 2.  Share of AGI and Tax Liability for High Income Taxpayers1993 1997 1998*Share of AGI    $200,000 and above 14.5% 20.3% 21.6%    $1 million and above 4.9% 8.6% 9.3%Share of tax liability     $200,000 and above 29.8% 37.7% 39.8%     $1 million and above 11.4% 16.9% 18.3%Source: Congressional Budget Office*preliminaryfederal taxes.  This  has been the mechanism that has fueled the increase in federal taxrevenues.  A larger percentage of total income is now earned by taxpayers at the top of theincome distribution where marginal income tax rates are the highest which, in turn, hassignificantly increased federal revenues.Yet at the same time the average federal tax rate in each income bracket has notincreased.  Moreover, as shown in table 3, average federal tax rates were projected todecrease between 1995 and 1999.  The decrease in average federal tax rates over thisperiod is the result of tax reductions enacted in the Taxpayer Relief Act of 1997 includingthe child tax credit, educational related tax reductions, changes in individual retirementaccounts, and reductions in taxes on capital gains income.Table 3.  Federal Effective Tax Rates for All Individuals and FamiliesIncome (thousands of dollars) 1995 199910 to 20 11.6% 9.5%20 to 30 17.0% 15.4%30 to 40 20.0% 17.8%40 to 50 22.1% 20.5%50 to 75 23.9% 22.4%75 to 100 25.9% 24.6%100 to 200 27.8% 26.7%200 plus 35.3% 33.0% Source: Congressional Budget Office.As a consequence of the rapid growth in real incomes, especially the growth in realincomes for higher income taxpayers, the federal government will likely see revenuesincrease  while, within each income bracket, average federal tax rates will remain stableor actually decrease over the next few years. 

Recent Trends in the Federal Tax Burden

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Recent Trends in the Federal Tax Burden

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