In 2005, the overall U.S. effective tax rate (the ratio of federal taxes to household income) rose to 20.5% from 20.1% percent in 2004, reflecting a rise in the effective individual income tax rate and in the effective corporate income tax rate, the Congressional Budget Office said in its annual tally. In 2000, before President Bush�s tax cuts, it was 23%.

CBO said the effective tax rate paid by the top 1% Americans declined slightly to 31.2% from 31.4%. In 2000, before Mr. Bush�s tax cuts, the top 1% paid 33% of their income in taxes.

But the share of taxes paid by the best-off 1% of the population rose to 27.6% in 2005 from 25.4% from 2004 because their share of pretax income rose so significantly.

The effective tax rate paid by the American households in the middle class in 2005 was 14.2%, up from 2004 (14.1%) but down significantly from the pre-Bush 16.6% level of 2000. The tally includes all federal taxes, not just the all-too-familiar federal income.

Source. This will of course come as real news to those who get their news from newspapers. To the rest of us, not so much is new. The top 1% is a bigger share of total income than it was before -- yes, that means inequality went up, for those of you scoring at home -- so while they are paying more of the taxes, their tax/income ratio went down. The question is, if you had kept the tax/income ratio at 33% for that 1%, would there be an increase in GDP for everyone else?

Labels: economics, taxes