Working Paper: NBER ID: w7707
Authors: Andrew Mitrusi; James Poterba
Abstract: This paper presents new evidence on the level and distribution of income and payroll tax burdens for U.S. families over the 1979-1999 period. During this period, payroll taxes have become an increasingly important component of the tax burden for many low- and middle-income families. This paper uses a new and expanded version of the NBER TAXSIM program to analyze the impact of legislative changes in income and payroll taxes. Averaged over all families, the combined 1999 payroll and income tax burden was quite similar to what it would have been if the 1979 income and payroll tax laws had remained in force for the last two decades, with only inflation-based adjustments to tax brackets. The mix of income and payroll taxes has changed, however. As a result of the expansion of the Earned Income Tax Credit in the late 1980s and early 1990s, as well as other changes in the federal personal income tax, payroll tax liabilities now exceed income tax liabilities for nearly two thirds of families. In 1979, payroll taxes exceeded income taxes for 44 percent of families.
Keywords: Payroll Tax; Income Tax; Tax Burdens; EITC; Taxpayer Relief Act
JEL Codes: H2
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Taxpayer Relief Act of 1997 (TRA97) (H20) | income tax liabilities (H26) |
| expansion of the Earned Income Tax Credit (EITC) (H31) | income tax liabilities for low-income families (H24) |
| income levels (J31) | tax burdens (H22) |
| average payroll tax burden exceeds average income tax burden for families below an adjusted AGI of $100,000 (H22) | tax burden distribution (H22) |
| combined payroll and income tax burden for families in 1999 (H24) | tax burden structure (H22) |