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Middle-Income Tax Burden: Lowst Level in Decades
Jul 05, 2008

Dr. Mark J. Perry

CARPE DIEM
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WASHINGTON, D.C. – Recently released Congressional Budget Office (CBO) data show that the total effective federal tax rate (including income, payroll, and excise taxes) of the middle fifth of households declined after 2001 to its lowest levels since at least 1979 (see chart above). Under the 2001 and 2003 tax relief legislation, the income tax as a share of income for the middle fifth also has fallen to its lowest levels in decades.
In 2005, the CBO data indicate that in the middle fifth, the total effective tax rate was 14.2%, while the effective individual income tax rate was 3%. These figures compare to 2000 levels of 16.6% and 5.0%, respectively. Between 2003 and 2005, the total effective tax rate for the middle fifth edged up, but still remained far below the levels of the previous 24 years.
The CBO analysis shows that the 2001 and 2003 tax cuts have lowered the effective tax burden on middle income taxpayers to the lowest levels since at least the late 1970s. The CBO tax figures, put into historical perspective, also show that the income tax burden of middle income households has been reduced to its lowest levels in many years.

Note: Most households do not remain in a specific quintile for extended periods of time.