PRESENT LAW RELATED TO THE INDIVIDUAL INCOME 

AND SOCIAL INSURANCE TAXES AS IN EFFECT 

FOR 2009 AND BACKGROUND DATA RELATED 

TO THE DISTRIBUTION OF FEDERAL TAXES 

Scheduled for a Public Hearing 

Before the 

SENATE COMMITTEE ON FINANCE 

on March 26, 2009 

Prepared by the Staff 

of the 

JOINT COMMITTEE ON TAXATION 

 

March 24, 2009 

JCX-21-09 
i 

CONTENTS 

Page

INTRODUCTION .......................................................................................................................... 1

I. SUMMARY OF PRESENT-LAW FEDERAL TAX SYSTEM ........................................... 2

A. Individual Income Tax ..................................................................................................... 2

B. Social Insurance Taxes .................................................................................................... 8

II. BACKGROUND DATA RELATED TO THE DISTRIBUTION OF INCOME AND 

 TAXES ................................................................................................................................... 9
1 

INTRODUCTION 

The Senate Committee on Finance has scheduled a public hearing on March 26, 2009 on 

middle income tax relief options. This document,1 prepared by the staff of the Joint Committee 

on Taxation, provides a summary of the present-law Federal tax system with respect to the 

individual income tax and payroll taxes, as in effect for 2009. The document provides 

background data on the historical distribution of Federal tax liabilities from 1980 to 2005, as well 

as projections of the distribution of tax liabilities for 2009. 

The current Federal tax system has four main elements: (1) an income tax on individuals 

and corporations (which consists of both a “regular” income tax and an alternative minimum 

tax); (2) payroll taxes on wages (and corresponding taxes on self-employment income); (3) 

estate, gift, and generation-skipping transfer taxes, and (4) excise taxes on selected goods and 

services. This document provides a broad overview of the first two of these elements, excluding 

the corporate income tax. 

A number of aspects of the Federal tax laws are subject to change over time. For 

example, some dollar amounts and income thresholds are indexed for inflation. The standard 

deduction and tax rate brackets are examples of amounts that are indexed for inflation. The 

amount of earnings subject to the Social Security tax is adjusted annually for wage growth. In 

general, the Internal Revenue Service adjusts these numbers annually and publishes the inflationadjusted amounts in effect for a tax year prior to the beginning of that year. Where applicable, 

this document generally includes dollar amounts in effect for 2009 and notes whether dollar 

amounts are indexed for inflation. 

In addition, a number of the provisions in the Federal tax laws have been enacted on a 

temporary basis or have parameters that vary by statute from year to year.2

 For example, Public 

Law 110-343 (the Emergency Economic Stabilization Act of 2008, the Energy Improvement and 

Extension Act of 2008, and the Tax Extenders and Alternative Minimum Tax Relief Act of 

2008) and Public Law 111-5 (American Recovery and Reinvestment Act of 2009) extended a 

number of expired or soon to expire provisions on a temporary basis. In addition, many of the 

provisions of the Economic Growth and Tax Relief Reconciliation Act of 2001 initially were to 

expire at the end of 2010; some provisions of that Act have been modified subsequently or made 

permanent. For simplicity, this document generally describes the Federal tax laws in effect in 

2009 and generally does not include references to provisions as they may be in effect for future 

years or to termination dates for expiring provisions. 

 1

 This document may be cited as follows: Joint Committee on Taxation, Present Law Related to 

the Individual Income and Social Insurance Taxes as in Effect for 2009 and Background Data Related to 

the Distribution of Federal Taxes (JCX-21-09), March 24, 2009. This document can be found on the 

website at www.jct.gov. 

2

 See Joint Committee on Taxation, List of Expiring Federal Tax Provisions, 2008-2020 (JCX20-09), March 9, 2009. 
2 

I. SUMMARY OF PRESENT-LAW INDIVIDUAL INCOME TAX 

AND SOCIAL INSURANCE TAXES 

A. Individual Income Tax 

In general

A United States citizen or resident alien generally is subject to the U.S. individual income 

tax on his or her worldwide taxable income.3

 Taxable income equals the taxpayer’s total gross 

income less certain exclusions, exemptions, and deductions. Graduated tax rates are then applied 

to a taxpayer’s taxable income to determine his or her individual income tax liability. A 

taxpayer may face additional liability if the alternative minimum tax applies. A taxpayer may 

reduce his or her income tax liability by any applicable tax credits. 

Adjusted gross income

Under the Internal Revenue Code of 1986 (the “Code”), gross income means “income 

from whatever source derived” except for certain items specifically exempt or excluded by 

statute. Sources of income include, among other things, compensation for services, interest, 

dividends, capital gains, rents, royalties, alimony and separate maintenance payments, annuities, 

income from life insurance and endowment contracts (other than certain death benefits), 

pensions, gross profits from a trade or business, income in respect of a decedent, and income 

from S corporations, partnerships,4 trusts or estates.5 Statutory exclusions from gross income 

include death benefits payable under a life insurance contract, interest on certain State and local 

bonds, employer-provided health insurance, employer-provided pension contributions, and 

certain other employer-provided benefits. Gross income is also reduced by other items like trade 

or business expenses and capital losses. 

An individual’s adjusted gross income (“AGI”) is determined by subtracting certain 

“above-the-line” deductions from gross income. These deductions include, among other things, 

contributions to a tax-qualified retirement plan by a self-employed individual, contributions to 

 3

 Foreign tax credits generally are available against U.S. income tax imposed on foreign source 

income to the extent of foreign income taxes paid on that income. A nonresident alien generally is subject 

to the U.S. individual income tax only on income with a sufficient nexus to the United States. 

4

 In general, partnerships and S corporations are treated as pass-through entities for Federal 

income tax purposes. Thus, no Federal income tax is imposed at the entity level. Rather, income of such 

entities is passed through and taxed to the owners at the individual level. 

5

 In general, estates and most trusts pay tax on income at the entity level, unless the income is 

distributed or required to be distributed under governing law or under the terms of the governing 

instrument. Such entities determine their tax liability using a special tax rate schedule and are subject to 

the alternative minimum tax. Certain trusts, however, do not pay Federal income tax at the trust level. 

For example, certain trusts that distribute all income currently to beneficiaries are treated as “passthrough” or conduit entities (similar to a partnership). Other trusts are treated as being owned by grantors 

in whole or in part for tax purposes; in such cases, the grantors are taxed on the income of the trust. 
3 

certain individual retirement arrangements (“IRAs”), one-half of self-employment taxes, certain 

moving expenses, and alimony payments. 

Taxable income

In order to determine taxable income, an individual reduces AGI by any personal 

exemption deductions and either the applicable standard deduction or his or her itemized 

deductions. Personal exemptions generally are allowed for the taxpayer, his or her spouse, and 

any dependents. For 2009, the amount deductible for each personal exemption is $3,650. This 

amount is indexed annually for inflation. The deduction for personal exemptions is reduced or 

eliminated for taxpayers with incomes over certain thresholds, which are indexed annually for 

inflation. The applicable thresholds for 2009 are $166,800 for single individuals, $250,200 for 

married individuals filing a joint return and surviving spouses, $199,950 for heads of households, 

and $125,100 for married individuals filing separate returns. 

A taxpayer also may reduce AGI by the amount of the applicable standard deduction. The 

basic standard deduction varies depending upon a taxpayer’s filing status. For 2009, the amount 

of the standard deduction is $5,700 for single individuals and married individuals filing separate 

returns, $8,350 for heads of households, and $11,400 for married individuals filing a joint return 

and surviving spouses. An additional standard deduction is allowed with respect to any 

individual who is elderly or blind.6

 The amounts of the basic standard deduction and the 

additional standard deductions are indexed annually for inflation. Finally, a taxpayer may reduce 

AGI by an additional standard deduction for State and local property taxes paid of $500 ($1,000 

for joint filers) and for qualified motor vehicle taxes. 

In lieu of taking the applicable standard deductions, an individual may elect to itemize 

deductions. The deductions that may be itemized include State and local income taxes (or, in 

lieu of income, sales taxes), real property and certain personal property taxes, home mortgage 

interest, charitable contributions, certain investment interest, medical expenses (in excess of 7.5 

percent of AGI), casualty and theft losses (in excess of $500 per loss and in excess of 10 percent 

of AGI), and certain miscellaneous expenses (in excess of two percent of AGI7). The total 

amount of most itemized deductions allowed is reduced for taxpayers with incomes over a 

certain threshold amount, which is indexed annually for inflation.8

 The threshold amount for 

2009 is $166,800 ($83,400 for married individuals filing separate returns). 

 6

 For 2009, the additional amount is $1,100 for married taxpayers (for each spouse meeting the 

applicable criterion) and surviving spouses. The additional amount for single individuals and heads of 

households is $1,400. If an individual is both blind and aged, the individual is entitled to two additional 

standard deductions, for a total additional amount (for 2009) of $2,200 or $2,800, as applicable. 

7

 Certain expenses are not subject to the two percent of AGI limitation (e.g., certain interest 

expense, State and local taxes, theft and casualty losses, gambling losses, and medical expenses). 

8

 Certain itemized deductions are not reduced (i.e., medical expenses, investment interest, theft 

and casualty losses and gambling losses). 
4 

Tax liability

In general

A taxpayer’s net income tax liability is the greater of (1) regular individual income tax 

liability reduced by credits allowed against the regular tax, or (2) tentative minimum tax reduced 

by credits allowed against the minimum tax. The amount of income subject to tax is determined 

differently under the regular tax and the alternative minimum tax, and separate rate schedules 

apply. Lower rates apply for long-term capital gains; those rates apply for both the regular tax 

and the alternative minimum tax. 

Regular tax liability

To determine regular tax liability, a taxpayer generally must apply the tax rate schedules 

(or the tax tables) to his or her regular taxable income. The rate schedules are broken into 

several ranges of income, known as income brackets, and the marginal tax rate increases as a 

taxpayer’s income increases. Separate rate schedules apply based on an individual’s filing status. 

For 2009, the regular individual income tax rate schedules are as follows: 
5 

Table 1.–Federal Individual Income Tax Rates for 2009 

If taxable income is: Then income tax equals: 

Single Individuals 

Not over $8,350 .................................................................. 10% of the taxable income 

Over $8,350 but not over $33,950 ...................................... $835 plus 15% of the excess over $8,350 

Over $33,950 but not over $82,250 .................................... $4,675 plus 25% of the excess over $33,950 

Over $82,250 but not over $171,550 .................................. $16,750 plus 28% of the excess over $82,250 

Over $171,550 but not over $372,950 ............................... $41,754 plus 33% of the excess over $171,550 

Over $372,950 .................................................................... $108,216 plus 35% of the excess over $372,950 

Heads of Households 

Not over $11,950 ................................................................ 10% of the taxable income 

Over $11,950 but not over $45,500 .................................... $1,195 plus 15% of the excess over $11,950 

Over $45,500 but not over $117,450 .................................. $6,227.50 plus 25% of the excess over $45,500 

Over $117,450 but not over $190,200 ................................ $24,215 plus 28% of the excess over $117,450 

Over $190,200 but not over $372,950 ................................ $44,585 plus 33% of the excess over $190,200 

Over $372,950 .................................................................... $104,892.5 plus 35% of the excess over $372,950 

Married Individuals Filing Joint Returns and Surviving Spouses 

Not over $16,700 ................................................................ 10% of the taxable income 

Over $16,700 but not over $67,900 .................................... $1,670 plus 15% of the excess over $67,900 

Over $67,900 but not over $137,050 .................................. $9,350 plus 25% of the excess over $67,900 

Over $137,050 but not over $208,850 ................................ $26,637.50 plus 28% of the excess over $137,050 

Over $208,850 but not over $372,950 ................................ $46,741.50 plus 33% of the excess over $208,850 

Over $372,950 .................................................................... $100,894.50 plus 35% of the excess over 

$372,950 
6 

Married Individuals Filing Separate Returns 

Not over $8,350 .................................................................. 10% of the taxable income 

Over $8,350 but not over $33,950 ...................................... $835 plus 15% of the excess over $8,350 

Over $33,950 but not over $68,525 .................................... $4,675 plus 25% of the excess over $33,950 

Over $68,525 but not over $104,425 .................................. $13,318.75 plus 28% of the excess over $68,525 

Over $104,425 but not over $186,475 ................................ $23,310.75 plus 33% of the excess over $104,425 

Over $186,475 .................................................................... $50,447.25 plus 35% of the excess over $186,475 

Alternative minimum tax liability

An alternative minimum tax is imposed on an individual, estate, or trust in an amount by 

which the tentative minimum tax exceeds the regular income tax for the taxable year. The 

tentative minimum tax is the sum of (1) 26 percent of so much of the taxable excess as does not 

exceed $175,000 ($87,500 in the case of a married individual filing a separate return) and (2) 28 

percent of the remaining taxable excess. The taxable excess is so much of the alternative 

minimum taxable income (“AMTI”) as exceeds the exemption amount. The maximum tax rates 

on net capital gain and dividends used in computing the regular tax are also used in computing 

the tentative minimum tax. AMTI is the taxpayer’s taxable income increased by the taxpayer’s 

“tax preference items” and adjusted by redetermining the tax treatment of certain items in a 

manner that negates the deferral of income resulting from the regular tax treatment of those 

items. 

The exemption amounts for 2009 are: (1) $70,950 in the case of married individuals 

filing a joint return and surviving spouses; (2) $46,700 in the case of other unmarried 

individuals; (3) $35,475 in the case of married individuals filing separate returns; and 

(4) $22,500 in the case of an estate or trust. The exemption amounts are phased out by an 

amount equal to 25 percent of the amount by which the individual’s AMTI exceeds (1) $150,000 

in the case of married individuals filing a joint return and surviving spouses, (2) $112,500 in the 

case of other unmarried individuals, and (3) $75,000 in the case of married individuals filing 

separate returns or an estate or a trust. These amounts are not indexed for inflation. 

Among the preferences and adjustments applicable to the individual alternative minimum 

tax are accelerated depreciation on certain property used in a trade or business, circulation 

expenditures, research and experimental expenditures, certain expenses and allowances related to 

oil and gas and mining exploration and development, certain tax-exempt interest income, and a 

portion of the amount of gain excluded with respect to the sale or disposition of certain small 

business stock. In addition, personal exemptions, the standard deduction, and certain itemized 

deductions, such as State and local taxes and miscellaneous deductions items, are not allowed to 

reduce alternative minimum taxable income. 
7 

Special capital gains and dividends rates

In general, gain or loss reflected in the value of an asset is not recognized for income tax 

purposes until a taxpayer disposes of the asset. On the sale or exchange of a capital asset, any 

gain generally is included in income. Any net capital gain of an individual is taxed at maximum 

rates lower than the rates applicable to ordinary income. Net capital gain is the excess of the net 

long-term capital gain for the taxable year over the net short-term capital loss for the year. Gain 

or loss is treated as long-term if the asset is held for more than one year. 

Capital losses generally are deductible in full against capital gains. In addition, 

individual taxpayers may deduct up to $3,000 of capital losses from ordinary income in each 

year. Any remaining unused capital losses may be carried forward indefinitely to another 

taxable year. 

A separate rate structure applies to capital gains and certain qualified dividends. For 

2009, the maximum rate of tax on the adjusted net capital gain of an individual is 15 percent. In 

addition, any adjusted net capital gain otherwise taxed at a 10- or 15-percent rate is taxed at a 

zero-percent rate. These rates apply for purposes of both the regular tax and the alternative 

minimum tax. 

Credits against tax

The individual may reduce his or her tax liability by any available tax credits. Tax credits 

are allowed for certain business expenditures, certain foreign income taxes paid or accrued, 

certain education expenditures, certain child care expenditures, and with respect to children 

under 17 and for certain elderly or disabled individuals. In addition, credits are allowed for 

earned income (the Making Work Pay credit), including a refundable earned income tax credit 

(“EITC”) for low-income workers who satisfy certain requirements. The amount of the EITC 

varies depending upon the taxpayer’s earned income and whether the taxpayer has one, two, 

more than two, or no qualifying children. In 2009, the maximum EITC is $5,656.50 for 

taxpayers with more than two qualifying children, $5,028 for taxpayers with two qualifying 

children, $3,043 for taxpayers with one qualifying child, and $457 for taxpayers with no 

qualifying children. Credits allowed against the regular tax are not uniformly allowed against 

the alternative minimum tax. 

 
8 

B. Social Insurance Taxes 

Social security benefits and certain Medicare benefits are financed primarily by payroll 

taxes on covered wages. The Federal Insurance Contributions Act (“FICA”) imposes tax on 

employers based on the amount of wages paid to an employee during the year. The tax imposed 

is composed of two parts: (1) the old age, survivors, and disability insurance (“OASDI”) tax 

equal to 6.2 percent of covered wages up to the taxable wage base ($106,800 in 2009); and (2) 

the Medicare hospital insurance (“HI”) tax amount equal to 1.45 percent of covered wages. In 

addition to the tax on employers, each employee is subject to FICA taxes equal to the amount of 

tax imposed on the employer. The employee level tax generally must be withheld and remitted to 

the Federal government by the employer. 

As a parallel to FICA taxes, the Self-Employment Contributions Act (“SECA”) imposes 

taxes on the net income from self employment of self employed individuals. The rate of the 

OASDI portion of SECA taxes is equal to the combined employee and employer OASDI FICA 

tax rates and applies to self employment income up to the FICA taxable wage base. Similarly, 

the rate of the HI portion is the same as the combined employer and employee HI rates and there 

is no cap on the amount of self employment income to which the rate applies.9

In addition to FICA taxes, employers are subject to a Federal unemployment insurance 

payroll tax equal to 6.2 percent of the total wages of each employee (up to $7,000) on covered 

employment. Employers are eligible for a Federal credit equal to 5.4 percent for State 

unemployment taxes. For 2009, the current 0.8 percent average tax rate (i.e., 6.2 minus 5.4) is 

composed of a permanent tax rate of 0.6 percent and a temporary surtax rate of 0.2 percent. 

Federal unemployment insurance payroll taxes are used to fund programs maintained by the 

States for the benefit of unemployed workers. 

 9

 For purposes of computing net earnings from self employment, taxpayers are permitted a 

deduction equal to the product of the taxpayer’s earnings (determined without regard to this deduction) 

and one-half of the sum of the rates for OASDI (12.4 percent) and HI (2.9 percent), i.e., 7.65 percent of 

net earnings. This deduction reflects the fact that the FICA rates apply to an employee’s wages, which do 

not include FICA taxes paid by the employer, whereas a self-employed individual’s net earnings are 

economically equivalent to an employee’s wages plus the employer share of FICA taxes. 
9 

II. BACKGROUND DATA RELATED TO THE DISTRIBUTION 

OF INCOME AND TAXES 

Historical trends in the distribution of income and taxes

The following tables and figures show historical trends from 1980 to 2005 in the 

distribution of income and Federal taxes across households, as well as measures of average tax 

rates by income category.10 By 2005, approximately 113 million households are represented in 

the data. 

Table 2 shows the average real (i.e., inflation-adjusted) pre-tax and after-tax household 

income for each income quintile11 for selected years from 1980 to 2005. All income quintiles 

experienced real gains in income, though the rate of growth was highly correlated to income. 

For example, the average real pre-tax income of the lowest quintile grew only $800 dollars (from 

$15,100 to 15,900) from 1980 to 2005, while the highest income quintile grew by $103,500 

(from $127,800 to $231, 300) over the same period. On a percentage basis, the average real pretax income of the lowest income quintile grew 5.3 percent over the 25-year period, while the 

remaining quintiles grew by 14.7, 18.7, 27.4, and 81.0 percent respectively. Similar figures with 

respect to after-tax income were 10.1 for the lowest quintile, and 20.4, 25.2, 33.9, and 85.4 

percent, respectively, for the other quintiles. 

 

 10 The historical data comes from Congressional Budget Office, Historical Effective Federal Tax 

Rates: 1979 to 2005, December 2007. 

11 The Congressional Budget Office methodology adjusts household income by household size 

(by dividing household income by the square root of the number of individuals per household) prior to 

ranking households by quintile. Thus there is no specific unadjusted household income range that defines 

the top and bottom of the quintile of households for all households, but rather separate ranges for each 

household size. For a household of three, the middle income quintile ranges from $52,828 to $78,289 (of 

unadjusted income) for 2005. Across all households, for 2005 the median household income is $64,800. 
10 

Table 2.−Average Pre-tax and After-tax Income and Income Shares, 

by Comprehensive Household Income Quintile, 1980-2005 

Average Real Pre-Tax Income (2005 Dollars) 

Year Lowest 

Quintile 

Second 

Quintile 

Middle 

Quintile 

Fourth 

Quintile 

Highest 

Quintile 

1980 15,100 32,600 49,300 66,900 127,800 

1985 14,300 32,200 49,600 69,400 143,900 

1990 15,300 33,800 51,600 72,900 159,000 

1995 16,000 35,200 53,200 75,800 171,100 

2000 16,600 37,700 57,000 84,500 222,600 

2005 15,900 37,400 58,500 85,200 231,300 

Average Real After-Tax Income (2005 Dollars) 

1980 13,900 28,000 40,100 52,500 92,900 

1985 12,900 27,400 40,600 55,200 109,400 

1990 13,900 28,900 42,400 57,800 119,000 

1995 15,000 30,500 44,000 60,300 123,500 

2000 15,500 32,800 47,500 67,100 160,400 

2005 15,300 33,700 50,200 70,300 172,200 

Share of Pre-Tax Income (Percent) 

1980 5.7 11.0 15.7 22.1 45.8 

1985 4.8 10.1 15.2 21.9 48.6 

1990 4.6 10.0 15.1 21.6 49.5 

1995 4.6 9.7 14.9 21.3 50.2 

2000 4.0 8.6 13.5 19.6 54.8 

2005 4.0 8.5 13.3 19.8 55.1 

Share of After-Tax Income (Percent) 

1980 6.8 12.1 16.5 22.3 42.8 

1985 5.5 10.9 15.8 22.0 46.7 

1990 5.3 10.8 15.8 21.9 47.3 

1995 5.5 10.9 15.9 21.9 46.8 

2000 4.9 9.7 14.7 20.2 51.3 

2005 4.8 9.6 14.4 20.6 51.6 

Source: Congressional Budget Office, Historical Effective Federal Tax Rates: 1979 to 2005, December 2007. 

Comprehensive household income equals pretax cash income plus income from other 

sources. Pretax cash income is the sum of wages, salaries, self-employment income, rents, 

taxable and nontaxable interest, dividends, realized capital gains, cash transfer payments, and 

retirement benefits plus taxes paid by businesses (corporate income taxes and the employer’s 

share of Social Security, Medicare, and federal unemployment insurance payroll taxes) and 

employee contributions to 401(k) retirement plans. Other sources of income include all in-kind 

benefits (Medicare, Medicaid, employer-paid health insurance premiums, food stamps, school 

lunches and breakfasts, housing assistance, and energy assistance). Households with negative 

income are excluded from the lowest income category but are included in totals. 
11 

Income categories are defined by ranking all people by their comprehensive household 

income adjusted for household size—that is, divided by the square root of the household’s size. 

(A household consists of the people who share a housing unit, regardless of their relationships.) 

Quintiles, or fifths, contain equal numbers of people. 

Individual income taxes are distributed directly to households paying those taxes (that is, 

the economic incidence of the tax is assigned to the individual remitting the tax and is not 

assumed to be shifted to other parties). Social insurance, or payroll, taxes are distributed to 

households paying those taxes directly or paying them indirectly through their employers. 

Corporate income taxes are distributed to households according to their share of capital income. 

Federal excise taxes are distributed to households according to their consumption of the taxed 

good or service. 

Figure 1 shows the real average pre-tax and after-tax income of the middle income 

quintile from 1980 to 2005. 

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

1980 1985 1990 1995 2000 2005

Dollars

Year

Figure 1.−Real Average Pre‐Tax and After‐Tax Income

of Middle Income Quintile

(2005 in Dollars)

Pre‐Tax

After‐Tax

Source: Congressional Budget Office, Historical Effective Federal Tax Rates: 1979 to 2005, December 2007. 
12 

0

2

4

6

8

10

12

14

16

18

20

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

Average Hourly Earnings(Dollars)

Year

Figure 2.−Average Hourly Earnings of Production Workers

1980‐2008

Constant

2005 Dollars

Current

Dollars

Source: Bureau of Labor Statistics; constant dollar figures obtained by adjusting the current dollar figures by 

changes in the Consumer Price Index- All Urban Consumers between the current year and 2005. 

Figure 2 shows average hourly wage data for production workers from 1980 to 2008. 

Between 1980 and 2008, the average hourly wage grew from $6.85 to $18.08. In real, inflationadjusted terms, the hourly wage was essentially unchanged, growing from $16.24 to $16.40 

(measured in constant 2005 dollars). The lack of growth in real hourly wages is not inconsistent 

with the observed real growth in household income, as additional hours worked by households, 

or real growth in non-labor income, can explain the difference. 

Table 2 also shows the share of pre-tax and after-tax income claimed by each income 

quintile. The share of aggregate income claimed by all income quintiles except the highest 

quintile fell from 1980 to 2005, on both a pre-tax and an after-tax basis. For example, the middle 

income quintile’s share of pre-tax income fell from 15.7 percent of all income in 1980 to 13.3 

percent. Comparable figures on an after-tax basis were 16.5 percent and 14.4 percent, 

respectively. In contrast, the share of pre-tax income claimed by the highest income quintile 

grew from 45.8 percent in 1980 to 55.1 percent in 2005 on a pre-tax basis, and from 42.8 percent 

to 51.6 percent on an after-tax basis. 
13 

Figure 3 shows the share of pre-tax and after-tax income claimed by the middle income 

quintile over the entire 1980 to 2005 period. 

10

11

12

13

14

15

16

17

1980 1985 1990 1995 2000 2005

Share of Total Income (Percent)

Year

Figure 3.−Shares of Total Income of Middle Income Quintile

1980‐2005

Pre‐Tax

Income

After‐Tax

Income

Source: Congressional Budget Office, Historical Effective Federal Tax Rates: 1979 to 2005, December 2007. 

Table 3 shows the percentage share of total Federal tax liabilities (individual income, 

social insurance, corporate income, and excise taxes), individual income tax liabilities, and social 

insurance tax liabilities by household income quintile from 1980 to 2005.12 Over this period, the 

share of total Federal liabilities, individual income tax liabilities, and social insurance liabilities 

paid by all but the highest income quintile have fallen. For example, the share of total Federal 

tax liabilities paid by the middle income quintile fell from 13.3 percent of the total in 1980 to 9.3 

percent of the total in 2005. The middle income quintile’s share of individual income tax 

liabilities fell over this same period from 10.8 percent of all individual income tax liabilities to 

4.4 percent, and social insurance liabilities fell from 19.5 percent of all social insurance liabilities 

to 16.7 percent. In contrast, the share of total Federal tax liabilities paid by the highest income 

 12 See notes to Table 2 for an explanation of the measure of income used here and for 

assumptions on the household incidence of the different types of taxes. 
14 

quintile rose from 56.3 percent of the total in 1980 to 68.7 percent of the total in 2005, while 

over the same period their share of individual income tax liabilities rose from 64.8 percent of all 

individual income tax liabilities to 86.3 percent, and their social insurance liabilities rose from 

36.8 percent of all social insurance liabilities to 43.6 percent. 

Table 3.−Shares of Federal Tax Liabilities for All Households, 

by Comprehensive Household Income Quintile, 1980-2005 

Share of Total Federal Tax Liabilities (Percent) 

Year Lowest 

Quintile 

Second 

Quintile 

Middle 

Quintile 

Fourth 

Quintile 

Highest 

Quintile 

1980 2.0 7.0 13.3 21.3 56.3 

1985 2.3 7.2 13.2 21.3 55.8 

1990 1.9 6.8 12.6 20.7 57.9 

1995 1.3 5.8 11.4 19.3 61.9 

2000 1.1 4.8 9.8 17.5 66.6 

2005 0.8 4.1 9.3 16.9 68.7 

Share of Individual Income Tax Liabilities (Percent) 

1980 0.1 4.2 10.8 20.2 64.8 

1985 0.2 4.0 9.9 19.0 66.9 

1990 -0.4 3.3 8.9 17.8 70.4 

1995 -2.0 1.9 7.7 16.2 76.1 

2000 -1.6 1.1 5.7 13.5 81.2 

2005 -2.9 -0.9 4.4 13.1 86.3 

Share of Social Insurance Tax Liabilities (Percent) 

1980 4.4 12.1 19.5 27.2 36.8 

1985 4.0 11.2 18.3 26.4 39.9 

1990 4.0 11.1 17.8 26.5 40.5 

1995 4.1 10.4 16.9 25.9 42.6 

2000 4.2 10.2 16.3 25.8 43.3 

2005 4.3 10.1 16.7 25.1 43.6 

Source: Congressional Budget Office, Historical Effective Federal Tax Rates: 1979 to 2005, December 2007. 

Note: See Table 2 for table footnotes. Negative shares indicate that on average the taxpayer is getting a refundable 

income tax credit. 
15 

Figure 4 shows the share of total Federal tax liabilities, individual income tax liabilities, 

and social insurance liabilities, attributable to the middle income quintile from 1980 to 2005. 

0

5

10

15

20

25

1980 1985 1990 1995 2000 2005

Share of Liability (Percent)

Years

Figure 4.−Share of Federal Tax Liabilities of Middle Income Quintile

1980-2005

Social

Insurance

Individual

Income

Total

Source: Congressional Budget Office, Historical Effective Federal Tax Rates: 1979 to 2005, December 2007. 

Table 4 shows the average total Federal tax rates by income quintile, as well as the 

average rates for the individual income tax and social insurance taxes. All income quintiles 

experienced a decline in the average total Federal tax rate, with the smallest decline occurring in 

the highest quintile. The decline in the average total tax rate was largely an effect of the decline 

in the average individual income tax rate. The average individual income tax rates declined over 

all income quintiles, falling by greater amounts the lower the income quintile. Average social 

insurance tax rates grew for all income quintiles from 1980 to 2005, with the sharpest growth 

occurring in the lowest income quintile. 
16 

Table 4.−Federal Tax Rates for All Households, by Comprehensive 

Household Income Quintile, 1980-2005 

Average Total Federal Tax Rate 

Year Lowest 

Quintile 

Second 

Quintile 

Middle 

Quintile 

Fourth 

Quintile 

Highest 

Quintile 

1980 7.7 14.1 18.7 21.5 27.3 

1985 9.8 14.8 18.1 20.4 24.0 

1990 8.9 14.6 17.9 20.6 25.1 

1995 6.3 13.4 17.3 20.5 27.8 

2000 6.4 13.0 16.6 20.5 28.0 

2005 4.3 9.9 14.2 17.4 25.5 

Average Individual Income Tax Rate 

1980 0.2 4.5 8.0 10.7 16.5 

1985 0.5 4.0 6.6 8.8 14.0 

1990 -1.0 3.4 6.0 8.3 14.4 

1995 -4.4 2.0 5.3 7.8 15.5 

2000 -4.6 1.5 5.0 8.1 17.5 

2005 -6.5 -1.0 3.0 6.0 14.1 

Average Social Insurance Tax Rate 

1980 5.3 7.6 8.5 8.5 5.5 

1985 6.6 8.8 9.5 9.6 6.5 

1990 7.2 9.3 9.9 10.3 6.9 

1995 7.6 9.1 9.6 10.3 7.2 

2000 8.2 9.4 9.6 10.4 6.3 

2005 8.3 9.2 9.5 9.7 6.0 

Source: Congressional Budget Office, Historical Effective Federal Tax Rates: 1979 to 2005, December 2007. 

Note: The average tax rate is the tax paid as a percentage of comprehensive household income. See notes to Table 

2 for definition of comprehensive household income. 
17 

Figure 5 shows the average tax rates for total taxes, and separately for individual income 

taxes and social insurance taxes, for the middle income quintile. 

0

5

10

15

20

25

1980 1985 1990 1995 2000 2005

Average Tax Rate

Year

Figure 5.−Average Tax Rates of Middle Income Quintile

Total

Social

Insurance

Individual

Income

Source: Congressional Budget Office, Historical Effective Federal Tax Rates: 1979 to 2005, December 2007. 

Notes: The average tax rate is the tax paid as a percentage of comprehensive household income. See notes to Table 

2 for definition of comprehensive household income. 

2009 projections of the distribution of income and taxes

In 2009, the mean income13 of all tax returns (excluding dependent filers and those with 

negative income, and including nonfilers) is projected to be $59,667. The mean taxable income 

of all returns is projected to be $35,154. The median income of all tax returns is projected to be 

$33,984; the median taxable income of all tax returns is projected to be $11,026. 

The mean income in 2009 of married taxpayers filing jointly with two dependents is 

projected to be $115,396, with the median income being $81,329. The mean taxable income for 

such taxpayers is $71,434, with the median being $41,198. For 2009, the top 10 percent (in 

 13 See notes to Table 5 for the definition of income used here. 
18 

terms of income) of all tax returns receive 44.5 percent of all income and pay 81.7 percent of all 

income taxes. The top five percent of all tax returns receive 33.0 percent of all income and pay 

68.8 percent of all income taxes. The top one percent of all tax returns receive 18.2 percent of all 

income and pay 44.6 percent of all income taxes. 

Table 5 shows the projected distribution of income and taxes by income category for 

2009 tax returns.14 For example, tax returns with $30,000 to $40,000 of income constitute 9.9 

percent of all returns, 5.9 percent of all income, 3.8 percent of total taxes, 0.4 percent of 

individual income taxes, and 7.0 percent of social insurance taxes. Similarly, tax returns with 

$100,000 to $200,000 of income constitute 10.1 percent of all returns, 23.3 percent of all income, 

27.4 percent of total taxes, 26.6 percent of individual income taxes, and 28.5 percent of social 

insurance taxes. 

Table 5 also shows average tax rates by income category for the individual income tax, 

social insurance taxes, and for total taxes (including the individual income tax, social insurance 

taxes and excise taxes, but not the corporate income tax). Note that the average tax rate reported 

here is the tax collected by the relevant tax, divided by total income (not only income subject to 

the relevant tax). The average tax rate for social insurance taxes is similar across most tax 

returns, ranging between seven and 12 percent for tax returns with income below $500,000, with 

substantially lower average rates for those with income above $500,000. In contrast, the average 

tax rate under the income tax varies widely, from a negative 10.2 percent to 23.4 percent, 

reflecting the existence of refundable tax credits and progressive statutory rates of tax. 

 14 The income categories and measures of income used in the staff of the Joint Committee 

models are not directly comparable to the historical data presented earlier in this pamphlet. Additionally, 

the staff of the Joint Committee on Taxation does not estimate the distribution of the corporate income 

taxes on account of the uncertainty in the incidence of the corporate income tax. See footnotes to Table 5 

for the definition of income used by the staff of the Joint Committee on Taxation. 
19 

INCOME CATEGORY (1)

$ Billions

Percent

Share

Average

Tax Rate $ Billions

Percent

Share

Average

Tax Rate $ 

Less than $10,000.................... 30,309 19.3% 142,126 1.5% 4.9 0.3% 3.5% ‐14.4 ‐1.6% ‐10.2% 

$10,000 to $20,000............... 24,568 15.6% 374,856 4.0% 3.8 0.2% 1.0% ‐32.6 ‐3.7% ‐8.7% 

$20,000 to $30,000............... 18,764 11.9% 478,320 5.1% 36.1 2.0% 7.6% ‐18.9 ‐2.2% ‐4.0% 

$30,000 to $40,000............... 15,535 9.9% 556,020 5.9% 70.1 3.8% 12.6% 3.3 0.4% 0.6% 

$40,000 to $50,000............... 12,665 8.0% 583,809 6.2% 87.4 4.8% 15.0% 18.1 2.1% 3.1% 

$50,000 to $75,000............... 21,695 13.8% 1,367,713 14.6% 238.7 13.1% 17.5% 74.4 8.5% 5.4% 

$75,000 to $100,000............... 13,189 8.4% 1,171,035 12.5% 233.2 12.8% 19.9% 85.8 9.8% 7.3% 

$100,000 to $200,000............... 15,942 10.1% 2,192,174 23.3% 499.7 27.4% 22.8% 233.6 26.6% 10.7% $200,000 to $500,000............... 3,789 2.4% 1,095,203 11.7% 283.5 15.5% 25.9% 196.8 22.4% 18.0% 

$500,000 to $1,000,000.............. 606 0.4% 419,262 4.5% 112.4 6.2% 26.8% 95.1 10.8% 22.7% 

$1,000,000 and over............... 320 0.2% 1,010,564 10.8% 253.9 13.9% 25.1% 236.9 27.0% 23.4% 

Total, All Taxpayers.......... 157,382 100.0% 9,391,082 100.0% 1,824.0 100.0% 19.4% 877.9 100.0% 9.3% 

(1) The income concept used to place tax returns into income categories is adjusted gross income (AGI) plus: [1] tax-exempt interest,  [2] employer contributions for health plans and life insurance, [3] employer share of FICA tax, [4] worker's compensation,  [5] nontaxable social security benefits, [6] insurance value of Medicare benefits, [7] alternative minimum tax preference items, and [8] excluded income of U.S. citizens living abroad. Categories are measured at 2008 levels.(2) Includes nonfilers, excludes dependent filers and returns with negative income.(3) Federal taxes are equal to individual income tax (including the outlay portion of the EIC), employment tax (attributed to employees),  and excise taxes (attributed to consumers). Corporate income tax is not included due to uncertainty concerning the incidence of the tax.  Individuals who are dependents of other taxpayers and taxpayers with negative income are excluded from the analysis. Does not include indirect effects.(4) The average tax rate is equal to Federal taxes described in footnote (3) divided by income described in footnote (2).

Table 5.−Distribution of Income and Taxes, and Average Tax Rates (2009)

COMBINED INCOME, SOCIAL 

INSURANCE, AND EXCISE TAXES 

UNDER PRESENT LAW (3) INDIVIDUAL INCOME TAXES 

Number of 

Returns (2) 

(Thousands)

Share of 

Returns

Income 

(Millions of 

Dollars)

Share of 

Income
20 

Table 6 shows, by income class, the number of tax returns paying income or social 

insurance taxes for which the social insurance taxes are greater than income taxes. Because of 

the progressive income tax structure and the generally flat structure of social insurance taxes, the 

lower is one’s income the greater is the likelihood social insurance taxes will exceed income 

taxes. Thus, for example, in the $40,000 to $50,000 income class 85.1 percent of tax returns 

have social insurance taxes greater than income taxes, while in the $100,000 to $200,000 group 

63.0 percent of returns have social insurance taxes greater than income taxes. 

INCOME CATEGORY (1)

Individual

Income Taxes

Employment

Taxes

$ Billions $ Billions

Less than $10,000......................... 18.1 ‐14.4 13.4

$10,000 to   $20,000..................... 15.9 ‐32.6 31.4

$20,000 to   $30,000.................... 15.9 ‐18.9 50.5

$30,000 to   $40,000.................... 14.5 3.3 61.9

$40,000 to   $50,000.................... 12.1 18.1 64.4

$50,000 to   $75,000..................... 21.4 74.4 153.6

$75,000 to $100,000..................... 13.1 85.8 139.1

$100,000 to $200,000................... 15.9 233.6 250.1

$200,000 to $500,000................... 3.8 196.8 81.0

$500,000 to $1,000,000............... 0.6 95.1 16.2

$1,000,000 and over.................... 0.3 236.9 16.4

Total, All Taxpayers.................... 131.5 877.9 878.0

(1) The income concept used to place tax returns into income categories is adjusted gross income (AGI) plus: [1] tax-exempt interest, 

 [2] employer contributions for health plans and life insurance, [3] employer share of FICA tax, [4] worker's compensation, 

 [5] nontaxable social security benefits, [6] insurance value of Medicare benefits, [7] alternative minimum tax preference items, and

 [8] excluded income of U.S. citizens living abroad. Categories are measured at 2008 levels.

(2) Includes nonfilers, excludes dependent filers and returns with negative income.

(3) Less than 50,000.

6.2%

87.9%

85.1%

80.6%

76.8%

63.0%

22.7

Millions of

Returns

99.9%

97.0%

93.1%

3.0

Returns with

Employment Taxes

Greater than Income

Taxes

Returns with

Employment Taxes

Less than Income

Taxes

Millions of Returns

18.0

15.4

14.8

1.7%

1.3%

82.8%

Fraction of Returns

with Employment

Taxes Greater than

Income Taxes

0.2

5.9

3.5

0.6

0.3

Table 6.−Tax Returns with Income or Social Insurance Taxes

0.0

0.0

108.9

Millions of Returns

0.0

0.5

1.1

1.8

1.8

4.1

12.7

10.3

17.2

10.1

10.0

Table 7 shows the average marginal tax rates for labor income and for long-term capital 

gain income by income category. A taxpayer’s marginal tax rate is the rate of tax that is owed on 

the last dollar of income of the taxpayer. Table 7 reports the average of the marginal tax rates of 

each taxpayer in the income category. 

The marginal tax rates on labor income reflect the effects of the individual income tax 

and the social insurance taxes. They generally rise with income, reflecting the progressive nature 

of the individual income tax. The social insurance tax is flat to regressive,15 reflecting the fact 

 15 Note that this statement reflects only the tax side of social insurance, and not the linked 

benefits. Many analysts think it is important to consider the tax and benefits of social insurance together. 
21 

that the single rate of tax for the Old Age and Survivors Disability Insurance portion of social 

insurance taxes does not apply to earnings above an annual cap ($106,800 in 2009).16 

The marginal tax rates on long-term capital income are lower than those for labor 

income, reflecting both the lower statutory rates of tax applicable to long-term capital gains and 

the fact that social insurance taxes do not apply to capital gain income. Marginal tax rates on 

long-term capital gains still generally rise with the level of income, reflecting the statutory 

structure of the maximum rates of tax on long-term capital gain income, as well as the interaction 

of capital gain income with other provision of the income tax that phase out certain tax benefits 

as income increases. 

Long‐Term Capital

Gains Income

Average Marginal

Tax Rate

Less than $10,000.......................... 0.1%

$10,000 to $20,000........................ 0.1%

$20,000 to $30,000........................ 0.8%

$30,000 to $40,000........................ 3.2%

$40,000 to $50,000........................ 4.5%

$50,000 to $75,000........................ 6.2%

$75,000 to $100,000...................... 7.4%

$100,000 to $200,000.................... 14.8%

$200,000 to $500,000.................... 18.6%

$500,000 to $1,000,000................. 15.2%

$1,000,000 and over...................... 14.8%

Total, All Taxpayers...................... 14.6%

(1) The income concept used to place tax returns into income categories is adjusted gross income (AGI) plus: [1] tax-exempt interest, 

 [2] employer contributions for health plans and life insurance, [3] employer share of FICA tax, [4] worker's compensation, 

 [5] nontaxable social security benefits, [6] insurance value of Medicare benefits, [7] alternative minimum tax preference items, and

 [8] excluded income of U.S. citizens living abroad. Categories are measured at 2008 levels.

(2) For individual income and employment taxes, the average marginal tax rate is equal to the change in taxes from an additional $100 

 of wages to each spouse with positive wages. For long-term capital gain, the average marginal tax rate equals the change in taxes from

 an additional 1% increase in long-term capital gains to each taxpayer with positive long-term capital gains.

Table 7.−Marginal Tax Rates on Labor Income and Long Term Capital Gain, by Income Category (2009)

16.7%

24.3%

Average Marginal

Income Tax Rate (2)

‐10.8%

0.6%

14.2%

13.4%

16.0%

16.0%

16.3%

Average Marginal

Employment Tax

Rate (2)

14.2%

14.2%

14.2%

14.2%

6.2%

31.0%

29.8%

32.1%

13.2% 26.8% 13.6%

Average Combined

Marginal Income and

Employment Tax Rate

Labor Income

3.4%

14.8%

27.6%

30.2%

30.2%

14.2% 30.5%

14.1%

11.9%

7.7%

6.4%

30.8%

36.3%

38.7%

36.2%

38.3%

 16 As table 7 shows, the marginal social insurance tax rate is 14.2 percent rather than the sum of 

the employer (7.65 percent ) and employee share (7.65 percent ), or 15.3 percent. The reason for this is 

that comprehensive income includes the employer share of social insurance tax liability. Hence the 

marginal social insurance rate is .153 divided by 1.0765, or 14.2 percent.