Tuesday, June 29, 2010

CBO Tax Study - Three charts

The Congressional Budget Office released some charts on tax incidence for the tax year 2007. They show several very interesting things.  Some are surprising, some are not.    The first chart shows share of pretax income and share of taxes paid.  The highest income quintile has the largest share of income and the highest share of taxes paid.  

The second chart shows incidence by tax source.  Not surprisingly, as income grows the share of taxes paid from social security, which includes for the non-medicare part of social security and income cap and for both parts a flat rate, declines as income increases.  
The third chart shows tax incidence by situation by tax source.  That sounds complicated, it is not.  The chart shows among other things the effect of the marriage penalty in start terms.  Tax rates for non-elderly couples (i.e. those not on social security) pay a slightly higher proportion of their incomes than couples with children or the elderly or the average for all households.
The CBO does not make conclusions about the efficacy of the tax system we have in these graphs.  The combination of extreme progressivity and its complicated nature would suggest to most observers that we are not being well served by the current system.  But it does not take an economist to understand that issue.  Evidently, the majority in congress are not up to making that conclusion.

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