The Tax Foundation has published an analysis showing just how progressive is the U.S. federal tax structure.
While the image that rich Americans pay little taxes is popular, it’s a misconception: high-income individuals already pay a large share of taxes, even when compared to their share of national income.
Data and analysis from the preeminent nonpartisan governmental research organizations confirms this pattern.
This August, the Congressional Budget Office (CBO) released its annual Distribution of Household Income report, this year relying on data from 2018. The report examines the distribution of household income (as one might guess), as well as taxes and transfer payments. The data shows that top-earning households pay substantial federal taxes. Notably, while the top 1 percent of earners took home 18.3 percent of market income in 2018, they paid 25.9 percent of all federal taxes; by the same token, the top 20 percent of earners received 59.1 percent of market income yet paid 68.9 percent of federal taxes.
And,
The Joint Committee on Taxation (JCT) published an analysis reaching a similar conclusion about the distribution of the tax code in 2018. My colleague Garrett Watson discussed the data this May. The original report found that the burden of federal taxes was much higher on high-earning households. They paid a much higher effective rate in total, similarly thanks to the progressivity of the personal income tax.
The following graph depicts the escalating tax rates as income rises.
TF also reports,
The Treasury Department has also released data confirming the above pattern. In a reportreleased this April, they estimated the distribution of federal tax burden across the income spectrum in 2022. According to these estimates, the top 1 percent under current law will pay the highest average effective tax rate, when considering all federal taxes. This difference is largely due to the significant progressivity of the individual income tax: the bottom 40 percent of taxpayers on average pay negative effective personal income tax.
There’s much more in the report and we encourage you to click through.
This, we again point out, is the way the system is supposed to work under fiscal federalism. As the Washington Research Council wrote in a still-relevant 2018 report,
We also point to a key principle of fiscal federalism (a theory allocating responsibilities among the three levels of government), which holds that redistributive tax policies are best enacted at the national level. Adding this dimension to the analysis leads to our third finding:
3. All state and local tax structures are regressive. But when the steeply progressive federal income tax system is considered, the overall federal-state-local tax burden is progressive in Washington and every other state, and the differences among the states represent smaller proportions of households’ tax burdens.
This report, of course, will not settle the debate about tax policy in Washington. Those who prefer a highly progressive tax structure may examine the data, accept that Washington is perhaps not the “most regressive” state in the nation, and still contend that Washington should adopt a more progressive tax system. States with an income tax typically rank as more progressive than those that lack one. Others may examine the data and conclude that, within the context of fiscal federalism and the expressed preferences of Washington voters, the state’s tax structure is satisfactory.
Right.
