Cato Podcast Who Actually Pays Federal Taxes?
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Apr 14, 2026 Adam Michel, director of tax policy studies and tax-policy expert, breaks down who actually pays federal taxes and why the code is so tangled. He covers tax incidence and progressivity. He discusses growing loopholes, trade-offs between special preferences and simplicity, and reform ideas like low flat-rate consumption taxes and protecting investment.
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Who Actually Pays Federal Taxes
- Federal receipts in 2026 are ~$5.6 trillion with personal income tax ~$2.7T and payroll ~$1.8T, and tariffs jumped >$200B due to recent policy.
- Joint Committee projects 191 million returns for 2025 but only 107 million with tax liability, so 44% of households pay no federal income tax.
Tax Burden Concentrated At The Top
- Across all federal taxes the top 10% pay 60% of total federal taxes and 72% of income taxes, according to Treasury data.
- The bottom 20% have negative effective income tax rates because refundable credits like EITC and the child tax credit produce net transfers.
Effective Federal Tax Rates Vary Widely
- CBO's 2022 effective federal tax rates: top 1% pay ~32% of income in federal taxes, middle quintile ~15%, bottom quintile ~1%.
- Refundable credits largely offset payroll taxes for low-income households, producing near-zero net rates.