Measuring the Average Marginal Tax Rate from the Individual Income Tax

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.