US tax acts and their effects on average tax rates

Abstract

Tax legislation since the early 1980s has significantly altered Average Tax Rates (ATRs) across the income distribution in the United States. Using a consistently defined ATR series for the years 1979–2003, this study finds that the 1980s reduced ATRs for all taxpayers except those in the bottom quintile whose ATRs rose. The reforms of the early 1990s generally had the effect of raising ATRs at the top of the income distribution and lowering those at the bottom, although the magnitude of the effects was smaller than the reforms of the 1980s. Reforms of the late 1990s and early 2000s significantly reduced ATRs virtually across the board. The only exception occurred in the bottom quintile where the effects of the various tax acts have been mixed. The tax acts of 2001 and 2003 reduced ATRs significantly in the top and middle quintiles, although the size of the ATR reduction in both cases was greater in the middle quintile than in the top quintile. Within the top percentile, the ATR reductions due to Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA03) are larger than those due to Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA01), but they are only modestly larger than the ATR reductions due to TRA86.

Keywords:

• tax reforms
• average tax rates
• tax burden
• income tax

JEL Classification:

• H22
• H24