Measuring the Average Marginal Tax Rate from the Individual Income Tax

Abstract

The economic effects of taxation depend on the configuration of marginal tax rates. We consider here the appropriate measure of a marginal tax rate for the federal individual income tax, which has a graduated-rate structure and allows for numerous legal and illegal deductions from total income. Our conclusion is that the explicit marginal rate from the tax schedule is the right concept for many purposes. Hence, we construct approximately weighted averages of these marginal tax rates for 1916-80. When weighted by adjusted gross income, the arithmetic average of marginal tax rates is 5% in 1920, 2% in 1930, 6% in 1940, 20% in 1950, 23% in 1960, 24% in 1970, and 30% in 1980.