The federal tax system is progressive, with average tax rates generally rising with income. In 2007, households in the lowest quintile paid 4.0% of income in taxes, the middle quintile paid 14.3%, and the highest quintile paid 25.1%. Higher-income groups earn a disproportionate share of pre-tax income and pay a higher share of federal taxes. Much of the progressivity comes from the individual income tax, with social insurance taxes being the largest burden for most households. Tax rates vary by household type due to differences in income and tax rules.

1. AVERAGE FEDERAL TAX RATES, 2007
(Percent)
30
25
20
15
10
5
0
Lowest Quintile Second Quintile Middle Quintile Fourth Quintile Highest Quintile
The federal tax system is progressive--that is, average tax rates generally rise with income. Households in the bottom fth of the
income distribution (with average income of $18,400, under a broad de nition of income) paid 4.0 percent of their income in federal
taxes. The middle quintile, with average income of $64,500, paid 14.3 percent of that income in taxes, and the highest quintile, with
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average income of $264,700, paid 25.1 percent. B UDGET O FFICE

2. SHARE OF TOTAL BEFORE-TAX INCOME AND TOTAL
FEDERAL TAX LIABILITIES, 2007
(Percent)
70
60
50
40
30
Share of Pretax Income Share of Taxes Paid
20
10
0
Lowest Quintile Second Quintile Middle Quintile Fourth Quintile Highest Quintile
Higher-income groups earn a disproportionate share of pretax income and pay a disproportionate share of federal taxes. In 2007, the
highest quintile earned 55.9 percent of pretax income and paid 68.9 percent of federal taxes. In all other quintiles, the share of federal
taxes was less than the income share. The bottom quintile earned 4.0 percent of income and paid 0.8 percent of taxes, and the middle
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quintile earned 13.1 percent of income and paid 9.2 percent of taxes. B UDGET O FFICE

3. AVERAGE FEDERAL TAX RATES BY INCOME QUINTILE
AND TAX SOURCE, 2007
(Percent)
15
10
5
0
-5 Indicidual Income Tax Corportae Income Tax
Social Insurance Taxes Excise Taxes
-10
Lowest Second Middle Fourth Highest All
Quintile Quintile Quintile Quintile Quintile Households
Much of the progressivity of the federal tax system derives from the individual income tax, which features average rates that rise
rapidly with income. Social Insurance tax rates rise gradually across most of the income distribution, falling for the top quintile. Among
the di erent types of taxes, social Insurance taxes pose the greatest liability for all quintiles except the highest, for which the individual
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income tax is larger. The impact of the corporate income tax rises with income, while the e ect of excise taxes falls. B UDGET O FFICE

4. AVERAGE FEDERAL TAX RATES BY HOUSEHOLD
TYPE AND TAX SOURCE, 2007
(Percent)
30
Indicidual Income Tax Social Insurance Taxes Corportae Income Tax Excise Taxes
25
20
15
10
5
0
Households Elderly Childless Nonelderly Childless All Households
with Children Households Households
Average tax rates vary among di erent types of households, because of di erences in household income as well as tax rules. The
elderly stand out, facing much lower payroll tax burdens than other types of households because wage income is a much smaller part
of their household income.
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B UDGET O FFICE

5. CUMULATIVE CHANGE IN REAL AFTER-TAX AVERAGE INCOME
(Index, 1979 = 1)
4.0
3.5
3.0
2.5
2.0 Top 1 Percent
1.5
1.0
0.5 Percentiles 0-60 Percentiles 61-80 Percentiles 81-95 Percentiles 96-99
0
1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007
Growth in after-tax income has been uneven across the income distribution, with upper-income groups seeing more rapid growth than
lower-income groups. Much of that increase re ects the pattern of before-tax income growth.
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B UDGET O FFICE

6. AVERAGE FEDERAL TAX RATE BY INCOME QUINTILE, 1979-2007
(Percent)
30
Highest Quintile
25
All Households
Fourth Quintile
20
Middle Quintile
15 Second Quintile
10
Lowest Quintile
5
0
1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007
The pattern of average tax rates has varied over time. The lowest three income quintiles have seen steady declines in their average rate.
The tax rate on the fourth quintile was at over most of this period, before declining in the early part of this decade. The tax rate on the
top quintile has uctuated more, with periods of increases and decreases.
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B UDGET O FFICE