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Tax rates and income distribution

A Note on Effective Federal Tax Rates: 1979-2002 – Center for American Progress
A Note on Effective Federal Tax Rates: 1979-2002
by John S. Irons
March 2, 2005
The Congressional Budget Office (CBO) recently published data on the effective tax rates paid by households in the United States for the years 1979 through 2002.[1] Between 2001 and 2002, the effective tax rate fell for all households from 21.4 percent to 20.7 percent. The share of total tax liabilities increased for the middle and fourth quintiles, while the share of total tax liabilities fell for the bottom two quintiles as well as the top. (See Box: Effective Tax Rates below for more information on this measure of tax rates.)
Upon first glance, the data appear to show that federal tax rates have become more progressive over the past 23 years. For example, if you quickly look at the effective tax rate and/or the tax share paid by quintiles, it looks as if the tax federal system has become more progressive.
However, assessing the progressivity of the tax code by examining the tax share or the effective tax rate by quintile can be misleading. Over time, the historical effective tax rate for each income class can change either as a result of changing tax laws, or it can be the result of changing household incomes within each income group. Assessing the change in effective tax rates does not by itself lead to conclusions about the progressivity of the tax code.
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