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1 Arthur P. Hall, Economic Expansion Leads to Higher Taxes on Median One- and Two-Earner American Families 1 (1996)

handle is hein.taxfoundation/srgfxz0001 and id is 1 raw text is: TAX,4 77 FOUNDATION November 1996, No. 65 Economic Expansion Leads to Higher Taxes on Median One- and Two-Earner American Families As the U.S. economy continues to expand, albeit slowly, so does the tax 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 per- cent of income for a two-earner family are pro- jected to increase to 38.4 percent, up from 38.1 percent in 1995; for a singlc-earner fam- ily, total taxes as a percent of income are pro- jected to increase to 36.4 percent from 36.1 percent in 1995. (See Figure 1.) Figure I Taxes as Percentage of Income,[r the Median One- and Two-Income Families, 1955- 1996 40.0% 35.0% 30.0% 25.0% 20.0% 15.0% 10.0% 5.0% * One Income I Two Income ,,\O \0 C r o 1 \ \c \o. o . \0 4).= 0.0%; 1955 1965 1975 1985 1990 1996e Source: 'Tax Fotldation. 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 per- cent of income. Those years were 1975, 1977- 1982, 1984, and 1985. The period encompass- ing the late- 1970s and early-1980s was difficult for taxpayers because of the high rates of infla- tion during the 1970s: Real income stagnated and simultaneously pushed taxpayers into ever-higher federal tax brackets. As Figure 2 shows, this situation was not reversed until the federal income tax reductions (and bracket indexation) of the 1980s took effect, In terms of inflation-adjusted dollars, the $21,883 total tax burden projected to be borne by a dual-earner family with the median income in 1996 will be the highest ever. How- ever, much of that reflects a secular increase in the real incomes of this family type. But the $11,113 total tax burden expected to be borne by a single-earner family with a median income in 1996 is relatively low by post-1975 standards. Table 1 shows the trend in the tax burden on double- and single-earner families (with a median income). The trend is illustrated decade-by-decade from 1955 through 1985. Thereafter, each year from 1985 through 1996 is presented. For double-income families, the tax burden as a percent of income has grown 10.7 percentage points since 1955; for single- income families the tax burden has grown 8.8 percentage points. By Arthur P. Hall, Ph.I). Senior Economist Tax Foundalion - - mod