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Measuring the Average Marginal Tax Rate from the Individual Income Tax

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  • Barro, Robert J.
  • Sahasakul, Chaipat

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.We also discuss the dispersion of marginal tax rates, as well as the behavior of average tax rates and deductions from taxable income. One noteworthy result concerns the fraction of adjusted gross income that accrues to families that face a marginal tax rate of at least 35%. This fraction quadruples from 1964 to 1980.
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Suggested Citation

  • Barro, Robert J. & Sahasakul, Chaipat, 1983. "Measuring the Average Marginal Tax Rate from the Individual Income Tax," Working Papers 26, The University of Chicago Booth School of Business, George J. Stigler Center for the Study of the Economy and the State.
    • Handle: RePEc:zbw:cbscwp:26
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    References listed on IDEAS

    as
    1. Joines, Douglas H, 1981. "Estimates of Effective Marginal Tax Rates on Factor Incomes," The Journal of Business, University of Chicago Press, vol. 54(2), pages 191-226, April.
    2. Miller, Merton H. & Scholes, Myron S., 1978. "Dividends and taxes," Journal of Financial Economics, Elsevier, vol. 6(4), pages 333-364, December.
    3. Aris Protopapadakis, "undated". "Some Indirect Evidence on Effective Capital Gains Tax Rates," Rodney L. White Center for Financial Research Working Papers 19-82, Wharton School Rodney L. White Center for Financial Research.
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