Monday, July 4, 2011

Taxes:  Are Taxes High or Low? A Further Look

A common criticism of my earlier point about federal taxes as a share of G.D.P. is that I ignored marginal tax rates — the tax on each additional dollar earned — and the payroll tax, which is the largest tax that most people pay. Of course, I did not ignore the payroll tax; it is part of total federal revenues. But the point about marginal rates is worth exploring further, since economists agree that this is often the most important tax rate for economic decision-making.

The Tax Policy Center annually calculates average and marginal tax rates for four-person families with the same relative income. It starts with the median income, which is the exact middle of the income distribution, with half of all families above and half below. It then calculates tax rates for those with half the median income, a common definition for the working poor, and twice the median income, which would represent the reasonably well-to-do.

The table below shows the average and marginal tax rates for each of these families since 1955, including both federal income taxes and the employee share of payroll taxes.

For more, see Are Taxes High or Low? A Further Look by Bruce Bartlett, June 21, 2011 at Economix.

1 comment:

dhsloan2970 said...

What I get out of this study is that the average tax rates for all groups have grown over 50% on a nearly linear path over the 55 years. The only people making out are the relative poor though they were in worse shape until 2005, "the Bush tax cuts" by the way removing many from the tax roles. The federal government is taking an ever larger portion of the national income. This has both productivity investment and job creation implications.