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THE
An Economic Education Newsletter from the Federal Reserve Bank of St. Louis

Volume 11, Issue 1 Spring 06

Income Taxes: Who Pays and How Much?

S

pring brings not only
March winds and April
showers, but also tax-filing
season. Whenever the topic
of taxes comes up, it usually
makes people wonder who
pays and how much. That’s
a fair question, and a close
look at some federal income
tax facts may provide some
surprising answers. The table
indicates who is paying federal
individual income taxes based
on income groups. Perhaps
more important, it reveals the
relative percentage of taxes
paid by these different groups
of taxpayers. (Note that this
chart only provides information on individual federal income tax and does not include other
taxes, such as payroll taxes or state income taxes.)
Federal tax receipts for 2003 totaled $1.7 trillion, with the
largest share—43 percent—coming from individual income

taxes (IIT). As shown in the
table, receipts from IIT totaled
$747.9 billion, the result of
128.6 million filed returns that
reported total adjusted gross
income (AGI) of $6.3 trillion.1 Thus, the ratio of taxes
to income, known as the “total
average tax rate,” was 11.9
percent. Undertaking the same
calculation for earlier years,
one finds that the average tax
rate for 2003 is the lowest rate
for 1985-2003.

From Top to Bottom
To answer the question of
who pays and how much, however, we need to take a closer
look at the data, which indicate income tax burdens for specific income groups. Let’s start with the top 50 percent income
group, compared to the bottom 50 percent. The former group
Continued on back cover

Federal Income Tax Burden by Income Group, 2003
Income
group

Group’s share Group’s share of
of total AGI (%) income taxes (%)

Average
tax rate (%)

Number
of returns

AGI
($ millions)

Income taxes
paid ($ millions)

128,609,786

6,287,586

747,939

100

100

11.9

Top 1%

1,286,098

1,054,567

256,340

16.77

34.27

24.31

Top 5%

6,430,489

1,960,676

406,597

31.18

54.36

20.74

Top 10%

12,860,979

2,663,470

492,452

42.36

65.84

18.49

Top 25%

32,152,447

4,078,277

627,380

64.86

83.88

15.38

Top 50%

64,304,893

5,407,851

722,027

86.01

96.54

13.35

Bottom 50%

64,304,893

879,735

25,912

13.99

3.46

2.95

All taxpayers

SOURCE: Internal Revenue Service, Individual Income Tax Returns with Positive Adjusted Gross Income (AGI), Tables 5 and 6; www.irs.gov/taxstats/indtaxstats/article/
0,,id=133521,00.html.

Q.
A.

Q.
A.

Bernanke has taught at several
universities, including Stanford University,
Massachusetts Institute of Technology and
Princeton University. As an author, he
has published several scholarly books and
two textbooks. His work with civic and
professional groups includes two terms
as a member of the Montgomery Township (N.J.) Board of Education. Before his
swearing-in as chairman of the Federal
Reserve, Bernanke was chairman of the
President’s Council of Economic Advisers,
from June 2005 to January 2006.

Who is Ben Bernanke?

Ben S. Bernanke was sworn in on
Feb. 1, 2006, as chairman and a member
of the Board of Governors of the Federal
Reserve System. Bernanke also serves as
Chairman of the Federal Open Market
Committee, the System’s principal monetary policymaking body.

Q.
A.

Besides being a member of the
Federal Reserve Board, what other
work experience does he have?

Q.
A.

How is the chairman of the Board
of Governors chosen?

The seven members of the Board of
Governors of the Federal Reserve System
are nominated by the President and
confirmed by the Senate. The chairman
and the vice chairman of the Board are
named by the president from among the
members of the Board of Governors and
are confirmed by the Senate.

What is his educational background?

Bernanke graduated summa cum
laude with a B.A. in economics from Harvard University in 1975. A Ph.D. in economics was awarded to Bernanke from
the Massachusetts Institute of Technology
in 1979.

Q.
A.

How long do the chairman and
other members of the Board of
Governors serve?

Terms of the seven members of the
Board of Governors of the Federal Reserve
System are for 14 years. The chairman
and vice chairman’s positions are for four
years, and they can be reappointed to
those four-year offices as long as they are
on the Board. Bernanke was appointed to
a full 14-year term, which expires Jan. 31,
2020, and to a four-year term as chairman, which expires Jan. 31, 2010.

The content for Q & A was compiled by Billy Britt,
economic education specialist at the St. Louis Fed’s
Little Rock Branch, and was largely adapted from
the “About the Fed” section of the Federal Reserve
Board’s web site. For more information, go to
www.federalreserve.gov/bios/bernanke.htm/. For
a list of previous Fed chairmen and the dates they
served in office, go to www.federalreserve.gov/bios/
boardmembership.htm.

Economic Snapshot
4th Quarter 2005
Q1-05

Q2-05

Q3-05

Q4-05

Growth rate —
Real Gross Domestic Product:

What trends do you see in federal receipts for the
’80s, ’90s and 2000s?

3.8%

3.3%

4.1%

1.7%

Inflation rate —
Consumer Price Index:

2.5%

3.7%

5.5%

3.2%

Civilian Unemployment Rate:

5.2%

5.1%

5.0%

4.9%

Federal receipts were fairly flat, on average, over most of
the 1980s. In the 1990s, after a slight downturn following
the recession in 1991, federal receipts rose for the rest of the
decade. Beginning in 2001, federal receipts have generally
been falling.

Government Current Receipts and Expenditures

What do you notice about total government
expenditures during the recessions that took
place from 1980 to the present? Why might your
observations be expected?

Percent of GDP
35

Total Expenditures

Except for one small downturn in 1991, total government
expenditures rose during recessions. This is not surprising
since claims for unemployment compensation and other
government transfers generally rise during recessions.

30
Total Receipts

25
Fed. Expenditures

20
Fed. Receipts

15
80

82

84

86

88

90

92

94

96

98

Shaded vertical lines represent recessions.
SOURCE: U.S. Department of Commerce, Bureau of Economic Analysis

00

02

04

06

When comparing federal expenditures with federal
receipts, describe whether the U.S. economy has
experienced a budget surplus (receipts greater than
expenditures) or a budget deficit (expenditures
greater than receipts) from 1980 to the present.
For most of these years, the federal government ran budget deficits. The exception was 1998-2001, during which
the United States experienced budget surpluses.

Bulletin Board

June 19-23 and 27-28, 2006

Making Sense of Money and Banking

“Now I Get It!”
Today’s Economy Unplugged

Federal Reserve Bank of St. Louis

This is a seven-day, three-credit course open to elementary and secondary teachers
and other educators interested in integrating money and banking topics into social
studies, language arts and math. The course will feature guest speakers from the
Federal Reserve Bank of St. Louis, as well as tours, hands-on activities, simulations for
classroom use and breakout sessions. Registration through either Southern Illinois
University at Edwardsville or the University of Missouri-St. Louis is required. Three
hours of graduate credit will be awarded to educators completing the course.
To register for ECON 500B-501 through SIUE, contact Mary Anne Pettit at
(618) 650-2583 or e-mail her at mpettit@siue.edu.
To register for ECON 310: Money and Banking through UMSL, contact Barbara
Flowers at (314) 516-5561 or e-mail her at bflowers@umsl.edu. Ask about scholarships for practicing teachers in Missouri.
For more information or to see this summer’s agenda, go to www.stlouisfed.org/
education/conferences.html.

What’s happening with inflation? Who really determines oil
prices? What can the Fed do about the economy? Focusing
on current economic topics can make your teaching timely,
interesting and relevant. Learn more about these issues—and
pick up tips to share with your students—at this free, oneday conference for educators of grades K-12.
At the program, which is sponsored by the Federal Reserve
Bank of St. Louis, you will hear a Fed economist’s take on
today’s economy. You will also learn about hands-on activities
and simulations for your classroom and get to take home free
teaching materials. Continental breakfast is served at 8 a.m.,
and lunch is provided. The program adjourns at 3 p.m.
The conference will take place in the following Eighth
District cities:
• Aug. 1 – Louisville, grades K-12
• Oct. 25 (elementary) and Oct. 26 (secondary) –
Memphis

SPOTLIGHT
ON ECONOMICS

• Nov. 1 (grades K-8) and Nov. 2 (grades 9-12) –
St. Louis
There is no fee, but registration with the Fed is required.
Go to www.stlouisfed.org/education/conferences.html for
more information.

Economics in Arkansas History
Economics is a vital part of Arkansas’ history—as well as its present and future.
Learn about topics ranging from the history of Arkansas’ fringe banking services to
the importance of the state’s leading economic sectors—such as tourism, forestry,
agriculture and manufacturing—at one of two upcoming symposiums for educators of
grades K-12:
• July 31, Aug. 1 and Aug. 2 – Little Rock, Ark.
• Aug. 3 and Aug. 4 – Fayetteville, Ark.
These free symposiums are being held in collaboration with the Arkansas Council
on Economic Education. At each symposium, you will also hear “Now I Get It!
Today’s Economy Unplugged,” a presentation from a Fed economist speaking on
current economic issues. As an added bonus, you will receive free lesson plans,
activities and materials to use in the classroom. Six, 12 or 18 hours of in-service credit
is available for attending this symposium. Continental breakfast will be served at 8:30
a.m., and lunch will be provided.

Education Specialists Available
for Staff Development
Education specialists in Little Rock, Louisville,
Memphis and St. Louis are available (at no charge)
to present programs for teachers. Please see your
Bank contact listed below. In addition, one-day
conferences will be held in each of these cities in
2006. Please go to www.stlouisfed.org/education/
conferences.html for information on upcoming
conferences.

There is no fee, but registration with the Fed is required. For more information, go
to www.stlouisfed.org/education/conferences.html, or call Billy Britt at (501) 324-8368.

Bank Contacts

Little Rock - Billy Britt (501) 324-8368

Louisville - David Ballard (502) 568-9257

Memphis - Jeannette Bennett (901) 579-4104

St. Louis - Dawn Griffitts (314) 444-8421

Continued from front cover

accounted for 86 percent of income (AGI)
and paid 96.5 percent of taxes (IIT),
while the latter accounted for 14 percent
of income (AGI) and paid 3.5 percent of
taxes (IIT). The average tax rate for the
top 50 percent was 13.4 percent, while
the rate for the bottom 50 percent was
3 percent. Both of these rates for 2003
were at their lowest levels for the period
of 1985-2003.

tax rate of 20.7 percent, and the top
1 percent paid a 24.3 percent rate, roughly
eight times the average rate of the bottom
50 percent. The rate of 24.3 percent is
approximately twice the average tax rate
for all taxpayers.

The Perfect Tax Structure
It has proved to be a major challenge in
the United States to reach political consensus on a tax system that simultaneously:
(1) provides desirable incentives to
work, save and invest;

The Top Half Dissected
Next, let’s look at groups in the top
50 percent. The top 25 percent accounted
for 64.9 percent of AGI and paid 83.9
percent of taxes (IIT). Their tax rate was
15.4 percent. Meanwhile, the top 10
percent accounted for 42.4 percent of AGI
and paid 65.8 percent of taxes (IIT). Their
tax rate was 18.5 percent. Comparing the
top 25 percent with the top 10 percent, it
is clear that those with higher incomes pay
higher average tax rates. This fact continues to hold as we examine those with even
higher income, which is a characteristic of
a progressive tax system (i.e., the income
tax rate increases as income increases).
The top 5 percent experienced an average

Classroom Discussion
1. The top 50 percent income
group pays what percent of all
individual income taxes?
2. What is a progressive tax system?
3. What are some generally
accepted criteria for a tax system?
4. What did you learn about
taxes that you didn’t know
before reading this article?

(2) is viewed as fair;
(3) is easy to understand; and
(4) generates sufficient revenues to
fund spending decisions.
Improving our knowledge of the existing
tax system, though, is a good place to start.
The Internal Revenue Service (IRS) defines adjusted
gross income as “total income” (as defined by the tax
code) less “statutory adjustments.” For information
on specific income for each income group, see the
lesson plans on www.stlouisfed.org/publications/itv/
default.html.

This article was adapted from Income Taxes:
Who Pays and How Much? which was written by
St. Louis Fed Vice President and Deputy Director
of Research Cletus C. Coughlin and was published
in the March 2006 issue of National Economic
Trends, a St. Louis Fed publication.

1

For a lesson plan to accompany this
article, go to www.stlouisfed.org/
publications/itv/default.html.

PRSRT STD
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PAID
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PERMIT NO. 444

Federal Reserve Bank of St. Louis
P.O. Box 442
St. Louis, Mo. 63166-0442
Inside the Vault is written by
Dawn Griffitts, manager
of economic education at the
Federal Reserve Bank of
St. Louis, P.O. Box 442,
St. Louis, MO 63166. The
views expressed are those of
the author and are not necessarily those of the Federal
Reserve Bank of St. Louis or
the Federal Reserve System.
Please direct all comments
and questions about the publication to (314) 444-8421 or
dawn.c.griffitts@stls.frb.org.