The overall effective federal tax rate (the ratio of federal taxes to household income) was 20.7 percent in 2006, with the highest quintile of American households paying 25.8 percent of their income in federal taxes.
How Much Americans Actually Pay in Taxes
By CATHERINE RAMPELL
Much has been written about President Obama’s plans to change Americans’ tax rates (changes that include raising rates for the wealthiest Americans, and cutting rates for everyone else). But there is often confusion about the fact that the rates being discussed are the marginal tax rates — that is, the rates for income above a certain level.
Fortunately, the Congressional Budget Office recently released updated data on effective average federal tax rates — that is, the percentage of their entire incomes that Americans hand over to the federal government in the form of personal income, social insurance, corporate income and excise taxes. As this is effective tax data, it also takes into account the fact that many Americans use deductions that make their taxes lower than statutory rates would imply.
The main findings: The overall effective federal tax rate (the ratio of federal taxes to household income) was 20.7 percent in 2006, with the highest quintile of American households paying 25.8 percent of their income in federal taxes.
Because higher-income groups earn a disproportionate share of pretax income and because tax rates rise with income, higher-income groups also pay a disproportionate share of federal taxes. In 2006, the top quintile of households earned 55.7 percent of pretax income and paid 69.3 percent of federal taxes, while the top 1 percent of households earned 18.8 percent of income and paid 28.3 percent of taxes.
Effective tax rates haven’t changed much in the last few years, but they have bounced around some over the last three decades. The top 1 percent of American households have seen the most range.
The top 1 percent of American households have experienced the greatest growth in after-tax incomes, too.
If you’re interested in how these figures compare to what residents of other nations are experiencing, you can find some relevant (and updated!) data from the Organization for Economic Cooperation and Development here. The O.E.C.D. data on tax rates are measured slightly differently, though.