How 2022 Became a Record Year for US Income Taxes
An asset-price boom, a progressive tax code and inflation interacted to drive effective rates higher than ever. Now the process is working in reverse.
Another thing to blame on the pandemic and inflation.
Photographer: Daniel Acker/Bloomberg
Americans paid out an estimated 14.7% of personal income in 2022 in what the US Bureau of Economic Analysis calls personal current taxes (mainly federal, state and local income taxes), an all-time high. But don’t worry, the percentage will be lower in 2023.
This record-setting income tax burden, and the sharp increase since 2020 that brought it to this level, was not due to new tax legislation taking effect during this period. It also wasn’t really expected — the Congressional Budget Office greatly underestimated how much income tax revenue would flow into federal coffers last year. It seems to have been the result of a pandemic asset-price boom interacting with inflation, a progressive tax code and, in a few states, the aftereffects of tax legislation enacted by Congress in 2017. The first two effects are fading, and the BEA’s monthly estimates of personal current taxes show that rates have already retraced more than half their pandemic increase since last summer.