According to CBO’s estimates, between 1979 and 2018, average household income before transfers and taxes grew more among households at the top of the income distribution than among those at the bottom. Among households in the highest quintile, average real (inflation-adjusted) income in 2018 was 111 percent higher than it was in 1979. In comparison, among households in the lowest quintile, average income before transfers and taxes was 40 percent greater in 2018 than in 1979, and among households in the middle three quintiles, it was 37 percent greater in 2018 than in 1979 (see Figure S-1, lower panel). Because of those differences in cumulative growth rates, income inequality was greater in 2018 than it was in 1979.
Trends in the Distribution of Income Before Transfers and Taxes, 1979 to 2018
Average federal tax rates generally rise with income. Households in the highest income quintile, which received about 55 percent of all income in 2018, paid more than two-thirds of federal taxes that year. In contrast, households in the lowest quintile, which received about 4 percent of all income, paid about 0.01 percent of federal taxes, on net, that year. Among households in the lowest two quintiles, individual income taxes are negative, on average, because they include refundable tax credits, which can result in net payments from the government.
Shares of Federal Taxes, 1979 to 2018
In 2018, average federal tax rates were higher among higher-income groups than among lower-income groups. The highest quintile’s average federal tax rate was 24 percent, compared with 13 percent for the middle quintile. The lowest quintile’s average federal tax rate was less than 0.1 percent, on net, as refundable credits offset the taxes paid by that group (see Exhibit 13). Within the highest quintile, average tax rates were higher at the top of the distribution, averaging 30 percent among households in the top 1 percent.
Average Federal Tax Rates, by Income Group, 1979 to 2018