Question

In a couple of short sentences, describe the changes in average tax rates between 1979 and 2013 for US taxpayers in the middle quintile of the income distribution.

Answer 1

As per the Report "

A Guide to Statistics on Historical Trends in Income Inequality

FEBRUARY 16, 2018 BY CHAD STONE, DANILO TRISI, ARLOC SHERMAN, AND RODERICK TAYLOR

TABLE 1
Change in CBO Comprehensive Income by Income Group and Time Period
Change in average income	Bottom 20 percent	Middle 60 percent	Next 19 percent	Top 1 percent
1979-2007
Before tax	41%	35%	68%	275%
After tax	44%	42%	73%	314%
1979-2013
Before tax	39%	32%	65%	187%
After tax	46%	41%	70%	192%

Source: CBPP calculations from Congressional Budget Office data.

Federal Taxes and Transfers Are Progressive But Both Before- and After-Tax Income Concentration Are High

The chart below shows that U.S. federal taxes and transfers are progressive. In 2013, the share of income after federal taxes and transfers received by the top 20 percent of households was somewhat smaller than these households’ share of income before federal taxes and transfers, while the opposite is true for households in the remaining 80 percent of the distribution.

Both measures of income were highly concentrated. In 2013, the top 1 percent of households received 17 percent of income before taxes and transfers and 12 percent of income after federal taxes and transfers, while the bottom 80 percent of households received a little over two-fifths of income before taxes and transfers and a little over half of income after taxes and transfers.

As CBO’s latest analysis of trends in income distribution from 1979 to 2013 shows, federal taxes and transfers both reduce income inequality, but the reduction due to transfers is considerably larger than that due to taxes.

After-tax incomes fell sharply at the top of the distribution in 2008 and 2009 but have begun to recover. The up-and-down pattern in 2012-13 may reflect, in part, decisions by wealthy taxpayers to sell assets in 2012 that had increased in value since they were first purchased in order to pay taxes on those capital gains before income tax rates increased in 2013. The Piketty-Saez data discussed below, which go through 2015, show a generally upward trend since 2009 that is consistent with this explanation.

Although the average level of after-tax income of the top 1 percent of households remains well below its 2007 peak, the percentage increase in their average after-tax income from 1979 to 2013 was five times larger than that of the middle 60 percent and four times larger than that of the bottom fifth. (See Table 1.) Moreover, CBO’s latest baseline assumptions predict earnings to grow faster for high-income earners than for others in the next decade,[32] suggesting that the Great Recession and financial crisis may have had only a temporary impact on the rising trend of income gains at the top, much as the impact of the dot-com collapse in the early 2000s was only temporary.

Trends in before-tax income growth look very similar. Because average tax rates have fallen for all income groups since 1979, growth in after-tax income has been somewhat larger than growth in before-tax income from 1979 to 2013. (See the box for more on the effect of taxes and transfers on income.) "

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