US Federal and State Average Marginal Income Tax RatesUS Federal and State Average Marginal Income Tax Rates in the NBER TAXSIM Model
Source: http://www.nber.org/taxsim/marginal-rates Notes: This is the seventh version of this table posted at http://www.nber.org/taxsim/marginal-tax-rates, showing results calculated in August of 2007. These are dollar weighted average marginal income tax rates for the US (and State if the headline so indicates) Individual Income Tax as calculated by the NBER TAXSIM model from micro data for a sample of US taxpayers. No allowance is made for tax deferred accounts or any other ownership not reported on an individual 1040 form. They are calculated by first calculating the tax liability of each eligible return, then increasing (in turn) each income type by 1% and recalculating the tax liability under the assumption that other incomes and expenses are constant. The difference in aggregate tax divided by the difference in aggregate income is the marginal tax rate on the average dollar of that income type. For some individuals with low or negative AGI the measured marginal rate may be zero even for a large income on a particular item. The rates take account of most features of the tax code including the maximum tax, minimum tax, alternative taxes, partial inclusion of social security, earned income credit, phaseouts of the standard deduction and lowest bracket rate, etc. If included, state tax liabilities are calculated to the best of our ability using the data from the federal return. The major missing items at the state level are municipal bond interest, federal interest, income splitting between husbands and wives, itemized deductions for taxpayers who itemize only on the state return etc. Because state of residence for taxpayers with AGI>200,000 is not given in the data, high income taxpayers are assigned randomly to states in proportion to the number of high income taxpayers listed in the SOI annual volumes. Only taxpayers with positive net capital gains (short plus long) are used in the calculation of the tax rates on gains. This is a change from previous versions of this table. For years when any income item is not broken out in the data the tax rate is shown as ``na''. The subsidy for deduction items is shown as a negative tax. For mortgage interest and (real) property tax deductions the result is biased by the absence of any information on non-itemizers. It would be a mistake to assume the bias could be ignored for any particular purpose, as a great many homeowners are not itemizers. Differences in marginal rates reflect both differences in the tax treatment of different types of income and differences in the (possibly endogenous) functional distribution of income. These ``dollar weighted'' marginal rates are typically higher than ``person weighted'' tax rates would be, but are more appropriate for most analysis of changes in the tax structure. The micro data are from the Individual Income Tax Models available from the Statistics of Income Division of the Internal Revenue Service. Sample sizes range from 80,000 to 200,000 actual tax returns, with weighted oversampling of high income returns. Our state tax calculator begins in 1977 but our state data begins in 1979. State ID is imputed for taxpayers with income above 200K. Note that we have no state tax law calculators post 2006, so we merely assume that the laws remain the same in real terms. Tax law includes EGGTRA, JGTRRA and TIPRA and is correct through July 2007, at least (to the best of our knowledge). 67% of post 2003 dividends received are assumed to be eligible for favorable treatment, and the tax rate shown is for such dividends. For another perspective on calculations of marginal tax rates, you may wish to read the Congressional Budget Office report which, however, covers on 2005. Please cite as Feenberg, Daniel, and Elizabeth Coutts,''An
Introduction to the Taxsim Model'' Journal of Policy Analysis and
Management Vol 12, Number 1, Winter 1993, and this web site
(http://www.nber.org/taxsim). Suggestions and comments are welcome. If you plan to use these numbers in a paper, it would be good to discuss the application with me first. I am not too busy to do this.
Daniel Feenberg
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