The voices of Tax Policy Center's researchers and staff
Fiscal year 2013 federal revenues came from four major sources: individual income tax (47 percent), payroll taxes (34 percent), corporate income tax (10 percent), and excise taxes (3 percent). Estate and gift taxes, customs duties, Federal Reserve earnings/losses, and miscellaneous receipts accounted for 6 percent.
Source: Budget of the United States, Historical Tables
Overall federal taxes are progressive; that is, the effective tax rate rises as income grows. In 2013, the average combined rate of federal income, payroll, corporate and estate taxes was 1.8 percent for the lowest quintile (or fifth) of the income distribution, 15.4 percent for the middle quintile, and 27.5 percent for the highest quintile.
Source: Tax Policy Center Table T13-0045.
The individual income tax is highly progressive, in large part because higher tax rates apply to higher income brackets: in 2013, the lowest quintile faced an average rate of -7.3 percent while the top quintile pays 16.4 percent. In contrast, because the tax supporting Social Security is capped and because high income people get more of their income from non-wage sources, the payroll tax is regressive (the effective rate falls as income rises): it claimed an average of 8.2 percent of income from tax units in the lowest quintile but only 6.8 percent from the top quintile; for the top 1 percent, the tax averaged just 0.9 percent of income.
Source: Tax Policy Center Table T13-0045.
The progressivity of the federal tax system means that high-income taxpayers bear a high share of taxes. In 2013 the top quintile of the income distribution received 515 percent of income and paid 66.7 percent of federal taxes.
Source: Tax Policy Center Table T13-0049.
The American Taxpayer Relief Act of 2012 (ATRA) substantively altered the tax code, making permanent many of the temporary tax changes enacted since 2001 while allowing tax cuts for high-income households to expire as scheduled. Most affected were the individual income tax and the estate tax. You can read more about ATRA here.
Information about specific provisions in ATRA is available in Tax Provisions in the American Taxpayer Relief Act of 2012 (ATRA).
For information about the distribution of ATRA provisions, see TPC's analysis page.
The distributional effects of the Bush-era tax cuts are provided in The Distribution of the 2001-2006 Tax Cuts.
A key insight from economics is that taxes are not always borne by the individual or business that writes the check to the IRS. Sometimes taxes are shifted. For example, most economists believe that the employer portion of payroll taxes translate into lower wages and are thus ultimately borne by workers. There is not a consensus, however, on the economic incidence of other taxes, such as the corporate income tax.
The Tax Policy Center's incidence assumptions generally (but not always) follow those adopted by the Congressional Budget Office and the Department of the Treasury. In particular, our tables assume the following:
The individual income tax is borne directly by individual income taxpayers.
Both the employee and employer share of payroll taxes are borne by the employee.
The corporate income tax is borne mostly by recipients of capital income (interest, dividends, capital gains, and rents), but workers share some of the burden. The Tax Policy Center assigns 80 percent of the burden to recipients of capital income and 20 percent to workers.
The estate tax is borne by decedents.
For further discussion of TPC's incidence assumptions, seehere.
A brief description of the Tax Policy Center's microsimulation model of federal taxes is available here.
More information about the distribution of the estate tax is given in Options to Reform the Estate Tax.
The Tax Policy Center’s most recent AMT estimates and projections can be found here.
The incidence assumptions used by the Treasury Department are discussed in U.S. Treasury Distributional Methodology. Treasury's assumptions about the incidence of the corporate income tax were updated in 2012 -- see Distributing the Corporate Income Tax: Revised U.S. Treasury Methodology.
Distributional tables divide tax units into dollar income categories or into percentiles of the income distribution. The dollar values for the percentile breaks are provided in Income Breaks for Distribution Tables.
See all publications related to the Current Law Distribution of Taxes.
See all estimates related to the Current Law Distribution of Taxes
By dollar income class
By income percentile
Posts and Comments are solely the opinion of the author and not that of the Tax Policy Center, Urban Institute, or Brookings Institution.