Sources of the Growth and Decline in Individual Income Tax Revenues Since 1994

May 2008

 

Notes 

Numbers in the text, tables, and figures may not add up to totals because of rounding.

Federal individual income tax revenues have risen and fallen by significant amounts since 1994. Although income tax revenues generally rise and fall with the economy, what is exceptional about the period since 1994 is the dramatic change in revenues relative to the nation’s gross domestic product (GDP). The ratio of individual income tax revenues to GDP reached an all-time high in 2000, followed by a 50-year low in 2004. This Congressional Budget Office (CBO) paper explores the forces that have led to the rise and fall of individual income tax revenues relative to total economic output since 1994, expanding upon previous analyses in various editions of CBO’s The Budget and Economic Outlook.

Kurt Seibert of CBO’s Tax Analysis Division wrote the report with guidance from David Weiner, Frank Sammartino, Roberton Williams (formerly with CBO), and Tom Woodward. Doug Hamilton, Jonathan Huntley, and Arlene Holen (formerly with CBO) provided comments.

Sherry Snyder edited the paper, and Leah Mazade proofread it. Maureen Costantino prepared it for publication and designed the cover. Lenny Skutnik printed the initial copies, Linda Schimmel handled the print distribution, and Simone Thomas prepared the electronic version for CBO’s Web site.

Peter R. Orszag
Director

May 2008

Contents

Summary and Introduction

Historical Perspective

Major Sources of Change from 1994 to 2004

Causes of Changes in Individual Income Tax Revenues, 1994 to 2004

Legislative Changes

A Rising and Falling Individual Income Tax Base

Changes in the Effective Tax Rate on Adjusted Gross Income

Changes in Income Tax Revenues Since 2004

 

Tables

1. Sources of Change in Individual Income Tax Liabilities as a Share of Gross Domestic Product, Calendar Years 1994 to 2004

2. Contribution of Changes in the Individual Income Tax Base to Changes in Income Tax Liabilities as a Share of Gross Domestic Product, Calendar Years 1994 to 2004

3. Contribution of Changes in the Effective Tax Rate on Adjusted Gross Income to Changes in Income Tax Liabilities as a Share of Gross Domestic Product, Calendar Years 1994 to 2004

 

Figures

1. Individual Income Tax Revenues as a Share of Gross Domestic Product, Fiscal Years 1946 to 2007

2. Contribution of Various Sources to the Change in Individual Income Tax Liabilities as a Share of Gross Domestic Product, Calendar Years 1994 to 2004

3. Individual Income Tax Revenues and Liabilities as a Share of Gross Domestic Product, Actual and Without Estimated L egislative Effects After 1994

4. Taxable Personal Income and Wages as a Share of Gross Domestic Product, Calendar Years 1990 to 2004

5. Realizations of Capital Gains as a Share of Gross Domestic Product, Calendar Years 1990 to 2004

6. Percentage Growth in Adjusted Gross Income (Excluding Capital Gains) at the 50th, 90th, and 99th Income Percentiles, Calendar Years 1994 to 2004

7. Share of Wages Accruing to the Top 0.5 Percent of Earners and Income from Nonqualified Stock Options as a Share of Wages, Calendar Years 1994 to 2004

 

Box

1. Effect of the Alternative Minimum Tax on Individual Income Tax Receipts