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1 Arthur P. Hall, Individual Effective Tax Rates in the United States 1 (1994)

handle is hein.taxfoundation/srdfxz0001 and id is 1 raw text is: TAXS FOUNDATION June 1994 Number 35 Individual Effective Tax Rates in the United States The federal, state, and local governments of the United States impose a wide variety of taxes on the American people, including taxes on individual incomes, corporate incomes, payrolls, sales, estates, and properties, as well as other miscellaneous taxes, fees, and charges. Accounting for all taxes on the federal and state/local levels, the average taxpayer's effective average tax rate increases as his income increases, producing what is known as a progressive tax structure. In many cases, effective average tax rates differ substantially from statutory tax rates. Statutory tax rates refer to the rates established in tax law. For example, the state of Mississippi imposes a statutory sales tax rate Figure 1 1993 Effective Average Tax Rates by Income Group 60% 50% 40% C 230% 2000 10% 0% z Ln C O L a) C\1 LO 0 U) -0 LO) C' O CO 0 LOl LC Ic) G Income Group ($000) Source: Tax Foundation. of 7 percent. For a single taxpayer in 1993, the federal government imposed a statutory marginal income tax rate of 15 percent on each additional (marginal) dollar earned by the taxpayer up to an income of $22,100; 28 percent on the marginal income between $22,100 and $53,500; and so on for the other statutory rates of 31, 36, and 39.6 percent. Effective average tax rates, by contrast, represent the actual tax burden of a taxpayer (whether on a single type of tax or on all taxes combined) divided by that taxpayer's total income. Figure I and Table I show, for the U.S. as a whole, the effective average tax rates for the typical taxpayer in each income group. Except for the dip at the low end of the income spectrum caused by the regressivity of federal payroll taxes, Figure 1 shows the progressiveness of the total tax burden in the U.S. Figure I further reveals that effective average tax rates become more steeply progressive for taxpayers over the $150,000 annual income level, largely because of the recent increase in federal statutory income tax rates made retroactive to January 1, 1993. The effective average tax rates shown in Table I correspond to the total tax burdens by income group shown in Table 3. Effective Marginal Tax Rates and Different Types of Income Taxation reduces people's ranges of economic choices by reducing the income they have at their disposal. Effective average tax rates quantify the economic burden overall taxation places on taxpayers, and, hence, the private economy. But marginal rates of taxation - the rate of taxation on each additional dollar earned, for example - provide the more relevant measure of By Arthur P. Hall, Ph.D. Senior Economist Tax Foundation

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