CHAPTER 6 - Estimates of Effective Marginal Tax Rates on Factor Incomes

Abstract

This chapter describes a method of calculating summary measures of effective factor income tax rates in the United States using readily available data. The numbers resulting from application of this method in a study are reported in the chapter, and some of their possible uses are discussed. The estimated factor income tax rates behave over time in a manner quite consistent with the behavior of other broad measures of federal tax policy. The postwar movement in the tax rate on income from labor relative to that on income from capital—or, more accurately, the relevant components of these tax rates—provides suggestive support for the Miller–Scholes hypothesis that the federal personal income tax has been moving in the direction of a pure consumption tax. The tax rates reported in the chapter are consistent with other studies that show a decrease since the 1950s in rates of taxation at the corporate level of income from corporate-held capital. They are also consistent with the view that rates of taxation of such income at the noncorporate level have risen but not quite sufficiently to offset the decline in the corporate tax burden.