The report documents a turning point in federal tax policy -- and not just for wealthy Americans. After falling steadily since the late 1990s, federal tax rates are on the rise for people at all income levels, due primarily to changes in tax law made during the 2012 showdown over the so-called "fiscal cliff."
That deal cancelled much of the massive tax increase that would have occurred had tax cuts enacted under former president George W. Bush been allowed to expire in their entirety. But some taxes went up nonetheless. In the biggest change, the wealthiest households saw the top two rates on income rise from 33 percent and 35 percent to 36 percent and 39.6 percent. Households further down the income spectrum lost an array of smaller tax breaks. Even the very poorest households saw taxes go up: They lost a temporary reduction in the payroll tax enacted at Obama's request in 2010.
Before the fiscal cliff, in 2011, the CBO report says, "average federal tax rates were near their lowest levels since 1979 for households in most of the income groups." The one exception was the top 1 percent. "For that group, the average federal tax rate in 2011 was near its lowest level since the early 1990s."
After the fiscal cliff, in 2013, the CBO projects that the average federal tax rate was higher across the income spectrum. But while 2013 rates "would still be well below the average" paid over the past three and a half decades for the bottom 80 percent of American earners, the rate for the top 1 percent of households "would be well above the average rate over that period."
To calculate tax rates, the CBO looked at "market income" (regular earnings) plus "government transfers" (payments from the federal government, such as unemployment benefits, Social Security and Medicare) to produce a broad measure of household income. CBO then subtracted all forms of federal taxes, including income taxes, excise taxes and corporate taxes. The 2013 estimates were calculated by applying post-fiscal cliff tax laws to 2011 income and tax data.
Overall, the CBO found, average household income totalled $81,000 in 2011, with government transfers adding another $13,000, on average. Taxes subtracted an average of $17,000 per household, producing an average federal tax rate of 17.6 percent.
Neither income nor the tax burden was evenly distributed, however. The richest 20 percent of households received "a little more than half of total before-tax income and paid more than two-thirds of all federal taxes in 2011," the CBO said. "In contrast, households in the [poorest 20 percent of households] received approximately 5 percent of total before-tax income in 2011 and paid less than 1 percent of all federal taxes."
While both the federal tax system and federal transfer payments served to narrow the gap between rich and poor, the CBO found that the transfer payments made a bigger dent in income inequality than taxes did.