Progressivity

Timothy Vermeer et al. at the Tax Foundation:

• The U.S. system of taxes and transfers is highly progressive.
• Measuring comprehensive income, inclusive of market-based income and government taxes and transfers, illustrates the total fiscal burden created by a fiscal system.
• Income transfer programs amplify the U.S. federal tax system’s progressivity, move the state and local system from moderate regressivity to moderate progressivity, and result in a highly progressive fiscal system overall.
• The lowest quintile experienced a combined tax and transfer rate of negative 127.0 percent, meaning that for each dollar they earned, they received an additional $1.27 from the government, netting transfers (gains) and taxes (losses), while the top quintile had a rate of positive 30.7 percent, meaning on net they paid just under $0.31 for every dollar earned.
• The top quintile funded 90.1 percent, or $1.6 trillion, of all government transfers in 2019. For each dollar of taxes paid, the top quintile received $0.11 in gross government transfers.
• Government transfers account for 59 percent of the bottom quintile’s comprehensive income. For each dollar of taxes paid by the bottom quintile, they received $6.17 in gross government transfers.
• Before transfers, total effective fiscal incidence rates were generally progressive: 24.6 percent for the bottom quintile, 24.7 percent for the middle quintile, and 34.5 percent for the top quintile.
• After transfers, total effective fiscal incidence rates were markedly progressive: 10.1 percent for the bottom quintile, 22.4 percent for the middle quintile, and 41.4 percent for the top quintile.
• Including transfers in income decreased the effective state and local fiscal incidence rate for the bottom quintile by more than 11 percentage points to 7.8 percent. The middle quintile saw a 1 percentage point decrease to 9.9 percent, while the top quintile saw an increase of 2 percentage points to 12.1 percent.
• About one-sixth of the tax burden borne by households in the lowest quintile is not personal taxes—like income, sales, and property taxes—but taxes remitted by businesses that are economically borne by taxpayers—like corporate income taxes, tariffs, severance taxes, and a variety of taxes on capital. Property taxes account for nearly one-third of the tax liability for this cohort, which includes both property taxes remitted directly by lower-income homeowners and those borne indirectly by renters.