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Financial Planning > Tax Planning

CBO Chief Elmendorf Testifies on Tax and Deficit Projections

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Doug Elmendorf,director of the Congressional Budget Office, testified before the Senate Finance Committee on Thursday on historical trends in federal tax revenues and rates. His testimony took a look at federal rates, tax bracket percentages and federal spending as a percentage of GDP in the recent past, as well as how these issues are trending for the near future.

Among the highlights of his testimony:

  • Over the past 40 years, federal revenues have ranged from nearly 21% of GDP in fiscal year 2000 to less than 15% in fiscal years 2009 and 2010, averaging 18% of GDP over that span. Most of the revenues—about 82% in 2010—come from the individual income tax and the payroll taxes used to finance Social Security, Medicare, and the federal unemployment insurance program.
  • The highest marginal income tax rate (the tax rate that applies to the top tax bracket) was as high as 70% as recently as 1980, although a lower maximum rate applied to earnings in that year. Since 1988, the highest marginal income tax rate has ranged from 28% to 39.6%.
  • The two largest tax expenditures are the deduction of mortgage interest on owner-occupied residences and the exclusion of employers’ contributions for health care, health insurance premiums and long-term care insurance premiums from the individual income tax. Each of those results in forgone revenues equal to about 9% of individual income tax revenues.
  • In 2007, households in the bottom fifth, or quintile, of the income distribution paid about 4% of their income in federal taxes, while the middle quintile paid 14% and the highest quintile paid 25%.

A summary of Elmendorf’s testimony is available on his blog.