Marginal income tax rates in the United States: a non-parametric approach

Abstract

The objective of this paper is to estimate both the U.S. federal marginal income tax rate and the state and local marginal income tax rates. We use the non-parametric regression method and data on income and tax extracted from U.S. Individual Tax Model Files for the period 1985–1995. The flexibility of the non-parametric approach and the information at the individual level enable us to construct a more reliable time series of the average federal marginal income tax rates and that of the average state and local marginal income tax rates. Our results suggest that the average federal marginal income tax rate varies from 18.2% to 21.8%, and the average state and local marginal income tax rate varies from 4.7% to 5.6%. We also find that the state and local income tax accounts for roughly 18% of the total income taxes paid during 1985–1995. Moreover, our analysis shows that Stephenson (Journal of Monetary Economics 41 (1998), pp. 389–409) provides the most consistent tax rate series for use in applications that require estimates of tax rates for years prior to 1985.