NOVEMBER 2004

Tax Burdens

In his first press conference after winning re-election, President Bush made it clear that income tax reform and tax cuts will be central issues in his second term. Newly released data from the Internal Revenue Service provide where the tax burden under the current system rests.

The IRS data reveal a sharply progressive income tax system, despite some claims made during the recent presidential campaign. The top half of taxpayers ranked by income paid over 96% of Federal individual income taxes in 2002. The top one percent of tax filers paid 33.7% of Federal personal income taxes, and the top ten percent accounted for 65.7% of these taxes. In contrast, the bottom half of all taxpayers in the U.S (ranked by income) paid just 3.5% of federal personal income taxes.

From an historical standpoint, by the year 2000 the U.S. personal income tax system had become more progressive than at any time in the last 50 years. For example, in 1949, the bottom half of taxpayers accounted for about 14% of federal personal income tax receipts and trended downward to 7% by 1980. In 1989 the percentage paid by the bottom half of tax filers had fallen to 5.8%. By 1999 it had fallen further to 3.5%.

Congressman Jim Saxton, Vice Chairman of the Congressional Joint Economic Committee, remarked that "these data must be considered before any valid distributional evaluation of income tax proposals can be made.... The tax shares already paid by various income groups largely determine the distributional outcomes of most major tax changes, not the tax structure of the legislation itself."