Additional assets 40764


Additional assets 40765

– May 16, 2016

Monetary Policy
Interest rates remain unchanged, but future hikes are possible.
Following its April policy meeting, the Federal Reserve left unchanged the key target range for the federal funds rate, in line with the public’s expectations. But several factors indicate that future rate hikes are possible.

Global risks, which have been an area of concern for the Fed, were not mentioned in its statement after the meeting. Energy prices are no longer dropping and restraining gains in consumer prices. The labor market shows steady improvement. All of these factors support a more contractionary monetary policy. Since most of the participants in the Federal Open Market Committee’s March meeting said that two or more increases of 0.25 percentage-point were appropriate this year, a hike in June and possibly another one in September or December remain probable. This, of course, is contingent on what the data indicate about economic performance over the course of the year. The Fed has repeatedly said that its decisions are data-driven.

Fiscal Policy
Tax filing statistics give a sense of income distribution and tax burdens.

By now most people have filed their income tax returns and know what they paid. Do you ever wonder how your taxes and income compare with those of other taxpayers?

This filing season, similarly to last year, about 71 percent of tax returns were eligible for a refund. The average refund was about $2,700, and total refunds were $263 billion.

Tax returns provide a look at the distribution of income and taxes. Data for 2015 are not yet available, but since these trends are fairly stable, 2014 statistics provide a good guide.

In 2014, the average adjusted gross income, or AGI, reported on individual tax returns was about $65,000. This is likely different from the average U.S. household income because not everyone is required to file a tax return. About 1.7 percent of all tax returns listed zero income or a net loss.

More than 60 percent of 2014 returns reported adjusted gross income of $50,000 or less and accounted for 18 percent of all income. But these filers paid less than 6 percent of all income taxes (see Chart 3).

Over 97 percent of tax returns reported adjusted gross income of $250,000 or less. Collectively, these filers accounted for about 70 percent of all income but just half of all income taxes paid. People who made $1 million or more paid about a quarter of all taxes.

The average tax rate across all income groups was 13.9 percent in 2014, but it varied considerably with income (see Chart 4). The average rate for those with incomes of less than $100,000 was below 10 percent. The average tax rate rose steeply for higher incomes, reaching about 28 percent for those reporting an AGI of $1 million to $5 million. The average tax rate of those who earned the most ($5 million or more) was slightly lower, at about 26 percent, mainly because much of their income came from capital gains, which tend to be taxed at lower rates than other forms of income.

It is striking that less that 3 percent of all tax returns (about 4 million reporting an adjusted gross income above $250,000) accounted for half of all taxes paid. It might explain how there can be both a concern about income inequality (that 3 percent of tax filers accounted for about 30 percent of all income) and a perception of inequitable tax burdens. 

Next/Previous Section:
2. Economy
3. Inflation
4. Policy
5. Investing
6. Pulling It All Together/Appendix

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