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In this module you will learn


1. Effective Tax Rates and the U.S. Tax System Structure

In the United States, effective tax rates are the total amount paid in taxes as a percentage of total household income. These tax rates measure how much of your household income is given to the U.S. government.

The Congressional Budget Office (CBO) divides incomes into five groups, each containing approximately 20% of all households. The effective tax rates for each income group determines the overall structure of the U.S. income tax system.

Can you match the effective tax rates with each household income group?

NOTE: CBO data is for 2006.

HINT: Your own effective tax rate is probably much lower than you think. Don't confuse the "income brackets" with effective rates. Most households pay taxes in several brackets.  


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What about the top 10%, 5% and 1% household incomes (subsets of the top 20% group)? Do these income groups actually pay at a lower rate than the other groups? Find out by completing the matching task below.


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2. Progressive and Regressive Tax Systems

A progressive income tax system is structured so that as incomes increase, so do the effective tax rates. Progressive tax systems are designed to place the greatest burden on income taxes on those most able to afford it. A regressive income tax system does the opposite: those in the bottom income groups are taxed at higher effective rates than those in the higher income groups.

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Value: 2
Which statement is true?


3. Additional Research

The CBO site has numerous publications, not all of them easy to find. Click HERE to see the data used to construct Exercise 1, above. In making comparisons to other sources of information about household income, take special note of the definition of comprehensive household income, as defined by the CBO on page 4 of this document. This page also contains a great deal of information about the relative tax burdens of income groups.

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