1
Historical Effective Federal Tax Rates:
1979 to 2005
December 2007
The following tables update the series of historical effective tax rates estimated by the
Congressional Budget Office (CBO) by providing values for an additional calendar
year—2005.1 The tables show effective tax rates for the four largest sources of federal
revenues—individual income taxes, social insurance (payroll) taxes, corporate income
taxes, and excise taxes—as well as the total effective rate for the four taxes combined.
The tables also present average pretax and after-tax household income; counts of
households; and shares of taxes, income, and households for each fifth (quintile) of
the income distribution and for the top percentiles of households.
Effective Tax Rates in 2005
Compared with its rate in 2004, the overall effective tax rate rose by
0.4 percentage points in 2005: to 20.5 percent from 20.1 percent (see Summary
Table 1). Increases in both the effective individual income and corporate income taxes
contributed to the change; partially offsetting those increases was a decline in the
effective social insurance tax rate. The overall effective excise tax rate was unchanged.
The effective individual income tax rate rose by 0.3 percentage points. The applicable
tax law was virtually unchanged from 2004 to 2005, so that change primarily reflects
changes in the underlying tax base. Part of that increase comes from real bracket
creep—the tendency of effective income tax rates to rise as income grows faster than
inflation, causing more income to be taxed in higher brackets. An upward shift in the
income distribution also contributed to the increase. The rise in effective tax rates was
lower than otherwise would have been expected, however, because income from capi-
tal gains, which faces lower tax rates than most other income, grew more rapidly than
other forms of income, driving down the effective rate.
The effective corporate income tax rate also rose, by 0.5 percentage points, reflecting
rapid growth in corporate p