Most workers will pay about that much on each dollar of income when all taxes -- federal and state income taxes, sales taxes, taxes for benefit programs, etc. -- are considered.
In a study for the National Bureau of Economic Research, Boston University economists Laurence J. Kotlikoff and David Rapson have found that our all-in marginal tax rate is 40%, give or take a bit. Yes, you read that right: 40%.
Democrats argue that taxes on the rich should be raised because others need the money. This wins votes from the legions of voters who aren't rich.
Republicans argue, with great piety, that high taxes crush incentives and should be reduced, and that only then will the American way see a new dawn.
Politicians talk this way because they generally talk about only one tax: the federal income tax, which offers graduated rates from 10% to 35%.
The average marginal tax rate on incomes between $20,000 and $500,000 is 40.3%, the median tax rate is 41.8%, and the standard deviation of all of those rates is 5.3 percentage points. Basically, most of us pay about 40%, plus or minus 5.3 percentage points.
| All-in marginal tax rates for couples | |||||||||
|---|---|---|---|---|---|---|---|---|---|
Age | $20,000 | $30,000 | $50,000 | $75,000 | $100,000 | $150,000 | $200,000 | $300,000 | $500,000 |
30 | 42.5% | 42.3% | 24.4% | 36.9% | 37.0% | 45.9% | 36.8% | 43.9% | 44.0% |
45 | 41.7% | 41.8% | 35.8% | 36.1% | 36.1% | 45.1% | 35.9% | 40.9% | 43.2% |
60 | 32.0% | 36.3% | 36.5% | 45.5% | 45.5% | 47.7% | 43.2% | 45.8% | 45.0% |
Source: "Does It Pay, at the Margin, to Work and Save?" by Laurence J. Kotlikoff and David Rapson
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