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Effective Tax Rates: Fact or Fancy?
Bittker, Boris
Bittker, Boris
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Abstract
For at least twenty-five years, tax commentators have pointed out that the Internal Revenue Code's rate schedules, which now start with a rate of 14 percent and rise to a top rate of 70 percent, are misleading. One source of confusion is the difference between the marginal rate applicable to a taxpayer's final dollar of taxable income and the average rate applicable to his taxable income as a whole. A married couple with $20,000 of taxable income, for example, is subject to a rate of 14 percent on their first $1,000 and to gradually increasing rates on additional increments to their income, until a rate of 28 percent is reached on their last $4,000 of taxable income. But their actual tax liability is $4,380, or about 22 percent of their taxable income of $20,000.