Income Shares, Tax Shares, and Average Tax Rates Across the Income Distribution

Income Shares, Tax Shares, and Average Tax Rates Across the Income Distribution

link to page 2

INSIGHTi
Income Shares, Tax Shares, and Average Tax
Rates Across the Income Distribution
December 7, 2020
The distribution of income and tax burdens often informs tax policy debates. The U.S. income tax system
is general y progressive. In a progressive tax system, those with higher incomes pay more, as a percentage
of their income, in taxes. As a result, average tax rates tend to be higher for higher-income taxpayers.
Future changes to the income tax system might seek to increase or decrease the progressivity of the tax
system, or to leave the distribution of the tax burden unchanged.
The Internal Revenue Service (IRS) is one source for data on the income and tax distribution. IRS data on
the income and tax shares for 2018 were recently released. Changes to the tax code that were part of the
2017 tax revision (P.L. 115-97), commonly referred to as the “Tax Cuts and Jobs Act” (TCJA), were
general y effective for the 2018 tax year. Thus, these 2018 data provide information on how the TCJA
initial y affected the distribution of the tax burden and average tax rates. This Insight uses IRS data on
income and tax shares from 2001 through 2018 to look at medium-term trends in the distribution of
income and the income tax burden, as wel as average tax rates for different income groups.
Distribution of Income
In 2018, the top 1% of taxpayers had 21% of total adjusted gross income (AGI). Since 2001, the share of
AGI earned by the top 1% of the AGI distribution has fluctuated (Figure 1). After rising early in the
2000s, it fel during the Great Recession, before rising again, although not to levels seen in the mid-
2000s.
Since 2001, when the share of AGI earned by the top 1% has fal en, the share of AGI going to earners in
the 50th to 90th percentile of the income distribution has tended to rise. There has been less fluctuation in
the share of AGI earned by taxpayers in the 90th to 99th percentile over the same period. The 12% share of
AGI earned by those in the bottom 50% of the AGI distribution is lower than it was in the early 2000s,
and has remained stable in recent years.
Congressional Research Service
https://crsreports.congress.gov
IN11549
CRS INSIGHT
Prepared for Members and
Committees of Congress

Congressional Research Service
2
Figure 1. Share of AGI Earned by AGI Group
2001-2018

Source: CRS calculations using IRS SOI data, Individual Income Tax Rates and Tax Shares, Table 1.
Distribution of Income Tax Burden
In 2018, taxpayers in the top 1% of the AGI distribution paid 40% of federal income taxes. If the income
tax system were proportional (e.g., “a flat tax”), meaning that each person paid an equal share of their
income in income taxes, then the top 1% of AGI earners would have paid 21% of total income taxes (or
an amount equal to the income group’s share of AGI). Since 2001, changes in the share of income taxes
paid by the top 1% have tended to follow changes in the share of income earned by the top 1% of the AGI
distribution. Between 2017 and 2018, the share of taxes paid by the top 1% increased, while the share
paid by al other income groups held roughly steady or decreased.
Taxpayers in the 90th to 99th percentile of the AGI distribution paid 31% of federal taxes in 2018, and
taxpayers in the 50th to 90th percentile paid 26% of federal taxes. Taxpayers in the bottom 50% of the AGI
distribution paid 3% of federal taxes. If the tax system were proportional, these taxpayers would have
paid 12% of income taxes.

Congressional Research Service
3
Figure 2. Income Tax Share by AGI Group
2001-2018

Source: CRS calculations using IRS SOI data, Individual Income Tax Rates and Tax Shares, Table 1.
Average Tax Rates across the Income Distribution
Average tax rates tend to rise across the income distribution. Average tax rates fel for al income groups
in the early 2000s following the 2001/2003 tax cuts. Through 2017, average tax rates were trending up for
al income groups other than the top 1%. Average tax rates for the top 1% held steady around 27% from
2013 through 2017, before decreasing to 25% in 2018. The average tax rate faced by the top 1% increased
markedly between 2012 and 2013, reflecting increased income taxes on high-income households in the
American Taxpayer Relief Act of 2012 (ATRA; P.L. 112-240).
Figure 3. Average Tax Rate by AGI Group
2001-2018

Source: CRS calculations using IRS SOI data, Individual Income Tax Rates and Tax Shares, Table 1.

link to page 3 Congressional Research Service
4

Notes: Average tax rates in the IRS data are calculated as income tax after credits divided by AGI.
While Figure 3 clearly il ustrates the general progressivity of the income tax, it masks regressivity at the
very top of the income distribution. The average tax rates for taxpayers in the top 0.01% and 0.001% of
the AGI distribution, about 24% and 23%, respectively, in 2018, are less than the 25% average rate of
taxpayers in the top 1%.
Comparing IRS and Congressional Budget Office (CBO) Data on Income and Tax
Burden Distributions
The analysis in this Insight is similar to portions of the analysis in the Congressional Budget Office’s
(CBO’s) October 2020 report on the distribution of household income. There are, however, some notable
differences. First, IRS data are available for 2018 (post-TCJA). CBO’s most recent report examines the
1979 through 2017 time period. Second, the measure of income differs. CBO’s report uses a measure of
household income that includes market income (e.g., wages, business income, and capital gains) and
social insurance benefits. In the IRS data, income is adjusted gross income (AGI), where income includes
market income but not necessarily social insurance benefits, less adjustments (e.g., above-the-line
deductions for educator expenses, student loan interest, or retirement contributions). Third, in CBO’s
study the unit of analysis is the household, which could include more than one tax filer or no tax filers.
Data from the IRS include only those filing a federal tax return, and the unit of analysis is the taxpayer.

Author Information

Molly F. Sherlock

Specialist in Public Finance

Disclaimer
This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff
to congressional committees and Members of Congress. It operates solely at the behest of and under the direction of
Congress. Information in a CRS Report should not be relied upon for purposes other than public understanding of
information that has been provided by CRS to Members of Congress in connection with CRS’s institutional role.
CRS Reports, as a work of the United States Government, are not subject to copyright protection in the United
States. Any CRS Report may be reproduced and distributed in its entirety without permission from CRS. However,
as a CRS Report may include copyrighted images or material from a third party, you may need to obtain the
permission of the copyright holder if you wish to copy or otherwise use copyrighted material.

IN11549 · VERSION 1 · NEW