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Income growth and share .. facts about the “1%”

Income growth and share .. facts about the “1%”

The Congressional Budget Office (CBO) regularly publishes analyses of the distribution of federal taxes and household income.  The most recent release provides extensive data on both taxation and household income for the years 1979 – 2009.  The three graphs below display:

  • Increase in after tax income
  • Change in share of after tax income
  • Change in share: total federal taxes vs. after tax income 

In all three cases, the data is demarcated by quintiles, 81st – 90th percentiles, 91st – 95th percentiles, 96th – 99th percentiles and top 1%.

As the historical record shows, households at the highest income levels far outpaced all other categories in income growth.  The top 1% experienced a 155% increase in after tax income over the period 1979 – 2009.

Here again, as the historical record shows, households at the highest income levels all increased their share of after tax income. All quintiles but the highest experienced a reduction in share. The top 1% experienced a 55% increase in their share after tax income over the period 1979 – 2009.

In contrast to the vast majority of households, High earners experienced a growing share of total federal taxes .. at the same time, their share of after tax income substantially increased  over the period 1979 – 2009 in comparison to the vast majority of Americans.

In Table 1, the CBO Report shows that average total effective tax rates ( income taxes, as well as payroll taxes, taxes on investments and other taxes), have fallen over the past 30 years for all groups. So they are paying less tax on each dollar they earn. For the wealthy households, rates have fallen more slowly; by 14% for the top quintile and 18% for the top 1% high earners. At the same time, the third graph above shows that these two high earner households paid an increased share of all federal taxes (not just income taxes) between 1979 and 2009; a 23% increase for the top quintile and 57% for the top 1%. So the high earners are paying a greater share of federal taxes than they used to. But also at the same, incomes have increased far more quickly for these folks .. 73% for the top quintile and 155% for the top 1%. And, in marked contrast to to bottom 80% .. who lost considerable income share .. the wealthy increased their share. Thus, as the data shows, the wealthy are paying a greater share of federal taxes even though they are paying less tax on each dollar earned .. due to the fact that they are making far more dollars than they used to.

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