Summary Measures of the US Income Tax System, 1960 - 2008

Marginal and Average Tax Rates and Elasticities

5060817 Records used

Notes:

These are dollar weighted average and marginal income tax rates and elasticities for the US 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.

These figures are generated by first calculating the tax liability of each eligible return, then increasing all income types by 1% and recalculating the tax liability under the assumption that itemized deductions are constant. The difference in aggregate tax divided by the difference in aggregate income is the marginal tax rate on the average dollar of incomee. The ratio of the initial liability to intial AGI is the average rate. The elasticity is the percentage change in tax for the 1% change in income. 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. For individual state by year figures, please see CSV, but note that year to year changes in those values may be largely sampling error.

Differences in marginal rates reflect both differences in the tax treatment of different types of income and differences in the 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.

Tax law includes EGGTRA, JGTRRA, TTRA and ARRA and is correct through March 2009, at least (to the best of our knowledge).

For another perspective on calculations of marginal tax rates, you may wish to read the Congressional Budget Office report which, however, covers only 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 use these data in a paper please send me a copy.

Daniel Feenberg
National Bureau of Economic Research
1050 Mass Ave
Cambridge MA 02138
617-588-0343
feenberg@nber.org