May 28, 2008

CBO's Data on the Distribution of Federal Taxes and Household Income

Marc Comtois

The Congressional Budget Office has released a new report, "Data on the Distribution of Federal Taxes and Household Income," which covers 1979-2005. Here's the "money graph":

Here's an explanation, including:
CBO’s analysis of effective tax rates assumes that households bear the burden of the taxes that they pay directly, such as individual income taxes (including taxes on interest, dividends and capital gains) and employees’ share of payroll taxes. The analysis assumes—as do most economists—that employers’ share of payroll taxes is passed on to employees in the form of lower wages than would otherwise be paid. Therefore, the amount of those taxes is included in employees’ income, and the taxes are counted as part of employees’ tax burden. CBO estimates payroll taxes and individual income taxes, including refundable tax credits, with a tax “calculator” that applies the tax law for the relevant year to the tax return data from the SOI.

Excise taxes are assumed to fall on households according to their consumption of taxed goods (such as tobacco and alcohol). Excise taxes that affect intermediate goods, which are paid by businesses, are attributed to households in proportion to their overall consumption. CBO assumes that each household spends the same on taxed goods as similar household with comparable income in the Consumer Expenditure Survey.

Far less consensus exists about how to attribute corporate income taxes (and taxes on capital income generally). In this analysis, CBO assumes that corporate income taxes are borne by owners of capital in proportion to their income from interest, dividends, capital gains, and rents....Over the long term, however, some models suggest that at least part of the burden falls on labor income. (emphasis added~ed.)

I emphasized what I did to remind all of our redistributionist friends out there of an economic truism: whatever extras you think you can extract from businesses will be passed along to employers and consumers. There is also this interesting graph:

Notice how consistent the "Social Insurance Taxes" (entitlements) are? Many more graphs to slice and dice here.