Cato Institute: The Federal Tax System Is Highly Progressive

Cato Institute, The State of Taxes: How the Feds Fund (and Don’t Fund) Spending:

Government data shows that the federal tax system is highly progressive. The highest‐​income Americans pay a disproportionate share of income taxes and face the highest average tax rates across all federal taxes. ...

The lowest‐​income half of Americans paid an average income tax rate of 3.1 percent, while the top 1 percent of income earners paid a 26.0 percent rate. Across all taxpayers, the average income tax rate was 13.6 percent.

High‐​income earners also pay a disproportionate share of the income taxes relative to income earned. Figure 1 shows that as a share of adjusted gross income (AGI), the top half of income earners paid 97.7 percent of federal income taxes. The top 1 percent earned 22.2 percent of total income and paid 42.3 percent of all the income taxes. The top 10 percent earned 49.5 percent of the income and paid 73.7 percent of the income tax.

The U.S. Treasury’s Office of Tax Analysis also estimates that the entire federal tax system is highly progressive, even after accounting for payroll, corporate, and other taxes. Figure 2 shows that average tax rates climb as incomes increase. The lowest 20 percent of income earners, measured by adjusted family cash income, face average tax rates that are either negative or close to zero. A negative tax rate means that the taxpayer is a net beneficiary of the tax system, likely receiving refundable tax credits, such as the Earned Income Tax Credit (EITC) and Child Tax Credit (CTC).

The top 10 percent of income earners pay an average tax rate of 26.7 percent. Treasury also breaks the higher income earners into even narrower slices, showing that as incomes rise, so do tax rates, even at the very top of the income distribution. The highest earning 0.1 percent, pay an estimated average tax rate of 32.4 percent.