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New CBO Study Confirms Wealthiest Americans Bear Income Tax Burden

1 min readBy: Scott Hodge

Fiscal Fact No. 13

In its new study of 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. burdens, the Congressional Budget Office (CBO) confirms what recent Tax Foundation research has shown: 40 percent of Americans pay no income tax.

With the bottom 40 percent paying no income tax, that leaves the top 60 percent to pay it all, and CBO data shows that the lion’s share is being paid by the top quintile. “Top quintile” is the CBO’s term for the top-earning 20 percent of the country—mostly dual-income couples and business owners.

Chart 1 below shows how the Bush tax cuts have pushed the second-lowest quintile into the negative range, meaning that when they file their tax returns, they don’t send a check, they receive a check (See also “Cautionary Notes for Comparing CBO’s Household Data to Standard Tax Data”). These “refund” checks return every dollar withheld during the year and more, mostly because of two tax provisions, one old and one new. The old one is the earned income tax creditA tax credit is a provision that reduces a taxpayer’s final tax bill, dollar-for-dollar. A tax credit differs from deductions and exemptions, which reduce taxable income, rather than the taxpayer’s tax bill directly. , and the newer one is the child tax credit, first enacted in the late 1990s at $500 per child and now doubled by the Bush tax cut to $1,000 per child.

Chart 2 below shows how much more of the total income tax collections the top quintile is paying, and how much less everyone else is paying. In this chart, as in the first, the effect of the Bush tax cuts can best be described as a continuation of long-term trends.