#CBO – Income for All Households Fell 12% from 2007 to 2009 in Real (Inflation-Adjusted) Terms

CBO – The recent recession has had a substantial impact on income, the amount of taxes owed, and average tax rates. Changes in households’ before-tax income and average tax rates in 2008 and 2009 were substantial and differed markedly across the income distribution. Average after-tax income fell notably, owing to a drop in market income caused by the recession that began in December 2007 that was only partially offset by increases in government transfers and decreases in federal taxes.

In this report CBO extends its estimates of the distribution of household income and federal taxes through 2008 and 2009, the latest year for which comprehensive data are available, and compares those estimates with estimates for 2007 and for the 1979–2009 period.

Average Before-Tax Income for All Households Fell 12 Percent from 2007 to 2009 in Real (Inflation-Adjusted) Terms

…The overall average federal tax rates of 18.0 percent in 2008 and 17.4 percent in 2009 were the lowest in the 1979–2009 period and were well below the previous low of 19.4 percent in 2003 and the average of 21.0 percent over that period. For most income groups, the 2009 average federal tax rate also was the lowest observed in the 1979–2009 period. The pattern in the intervening years is more varied, reflecting the interaction of numerous changes to tax law and changes in the composition and distribution of income.

With the decline in before-tax income offset in part by the decrease in federal taxes, average after-tax income fell 10 percent in real terms. The decline in after-tax income for the highest-income households reversed a substantial portion of the sharp rise in their income between 1979 and 2007.

Please see full at Source: http://www.cbo.gov/publication/43373