Special Report No. 65
Executive Summary As the U.S. economy continues to expand, albeit slowly, so does the taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. burden on America’s median-income family. Taxes on the American family increased for the third straight year in 1996. This year, total taxes as a percent of income for a two-earner family are projected to increase to 38.4 percent, up from 38.1 percent in 1995; for a single-earner family, total taxes as a percent of income are projected to increase to 36.4 percent from 36.1 percent in 1995.
These tax-burden levels rival the highest ever. For a dual-income family, the only years in which total taxes as a percent of income were higher than 38.4 percent were in the years 1980-1982. In those years, respectively, the shares were 38.6 percent, 40.6 percent, and 39.6 percent. However, for a single earner family, several years registered a total tax burden equal to or greater than 36.4 percent of income. Those years were 1975, 1977-1982, 1984, and 1985. The period encompassing the late-1970s and early-1980s was difficult for taxpayers because of the high rates of inflationInflation is when the general price of goods and services increases across the economy, reducing the purchasing power of a currency and the value of certain assets. The same paycheck covers less goods, services, and bills. It is sometimes referred to as a “hidden tax,” as it leaves taxpayers less well-off due to higher costs and “bracket creep,” while increasing the government’s spending power. during the 1970s: Real income stagnated and simultaneously pushed taxpayers into ever-higher federal tax bracketA tax bracket is the range of incomes taxed at given rates, which typically differ depending on filing status. In a progressive individual or corporate income tax system, rates rise as income increases. There are seven federal individual income tax brackets; the federal corporate income tax system is flat. s. This situation was not reversed until the federal income tax reductions (and bracket indexation) of the 1980s took effect.Share