Due to popular demand, I have updated my 2010 graph on top marginal tax rates. In addition, during this year’s tax season, I will be selling copies of my Top Marginal Tax Rates graph as a tabloid size 11″x17″ poster.  

FYI, your marginal tax rate is the rate you pay on the “last dollar” you earn; but when you view the taxes you paid as a percentage of your income, your effective tax rate is less than your marginal rate, especially after you take into account the deductions and exemptions, i.e. income that is not subject to any tax.

Tax Data: Married filing jointly, Capital Gains & Regular, Historical Corporate, Corporate Tax Schedule (page 16) pdf

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A large part of personal income is not considered “taxable” income by the IRS. In the graph personal income (as calculated by the Bureau of Economic Analysis) is around 80% of GDP. This includes all employee compensation + after tax business income + rent + interest + other income but no capital gains. However, the taxable income is around 30-40% of GDP (but it does add back capital gains as well as employee share of payroll taxes). While the taxes paid on income is only around 8% of GDP. Realized capital gains in the graph are from returns with positive net capital gains and you will notice that they peak in years 1966, 1986 as people sell off right before the capital gains tax rate increases and in 2000 when there was a bubble in the stock market.

Data from: Personal Income and Income Tax data; Capital Gains Tax Data; GDP from Measuring Worth

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See the Updated Version for 2011 here.

Green line is the top marginal rate for married couples filing jointly (most years dividends were tax like ordinary income until 2003), orange is the top rate for income from capital gains. The top corporate tax rate is included for comparison. Your marginal tax rate is the rate you pay on the “last dollar” you earn; but when you view the taxes you paid as a percentage of your income, your effective tax rate is less than your marginal rate, especially after you take into account the deductions and exemptions, i.e. income that is not subject to any tax.

Over the years, changing the amount of taxes people pay was accomplished not just by changing rates but by changing the income limits of the tax brackets. Just looking at the top rates does not give the whole picture about who is paying taxes. Before the 1986 tax reform, the income tax had 15 brackets. In the 1930s, there were more than 50. The Wealth Tax Act of 1935, applied the top rate to income over $5 million and had only a single taxpayer: John D. Rockefeller, Jr. As the number of tax brackets decrease, the the top rate was applied to more people over the decades. Since 1987 the income tax brackets were combined so now more than a million people “qualify” for the top marginal rate. If you are interested here is the first 1040 form for 1913.

Tax Data: Married filing jointly, Capital Gains & Regular, Corporate

Reminder: April 30th is the last day you can pledge to my project:
An Illustrated Guide to Income in the United States @ Kickstarter

Addendum: Rolled-back the 2009/2010 capital gains marginal rate to 15%

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I wanted to try out the new Tableau Public so I took the Average Tax Rates I calculated for my Comparing Rates by Income series and created this little graph. A couple disclaimers: I am assuming standard deduction and exemptions for the children and/or spouse in each example. Also I am combining all the taxes applied to your salary including: Income, Social Security, Medicare, and Payroll (paid by your employer).

Since this is a live, interactive chart you can hide/show each line using the check boxes at the bottom of the graph.

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Updated April 13, 2010:  I don’t think my original labels were clear so I tried to fix it with new labels and I reorder the graphs.

This is a new infographic illustrating the marginal federal tax rate applied to different salaries. It shows the difference between the combined rate levied on an employee (Income + SSN + Medicare marginal tax rate) and the additional rate levied on the employer, i.e. the payroll tax (SSN + Medicare tax) I am using the same examples that I created in the previous six graphics looking at the average tax rate.

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The sixth in series of infographics I am designing to illustrate the average federal tax rate applied to different salaries. This time I am graphing the average tax rates for a married couple with to kids and one salary. With 2 kids there are 2 more exemptions which increases the income tax cut offs for all tax brackets compared to the married with no children graphic.

If you take a look at your W-2 form you can see that there are 3 different taxes applied to salaries and wages:

The income tax graph is created from the 2009 tax schedule for a couple filing jointly or qualifying widow(er):

which you can find from the IRS Tax Tables here while the information about the social security and medicare tax can be found here.

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The fifth in series of infographics I am designing to illustrate the average federal tax rate applied to different salaries. This time I am graphing the average tax rates for a Head of Household with one child.

The difference between this graph and the couple with one income is the smaller standard deduction and lower cut offs for 10%, 15%, 25%, and 28% rates both of which raises their average income tax rate.

The income tax graph is created from the 2009 tax schedule for a Head of Household:

which you can find from the IRS Tax Tables here while the information about the social security and medicare tax can be found here.

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The fourth in series of infographics I am designing to illustrate the average federal tax rate applied to different salaries. This time I am graphing the average tax rates for someone while married is filing a separate tax return from their spouse.

The difference between this graph and that of a single taxpayer is that the cut offs for 28%, 33% and 35% rates are lower which will increases the average tax rates for people with an income over $78,000.

The income tax graph is created from the 2009 tax schedule for someone married filing separately from their spouse:

which you can find from the IRS Tax Tables here while the information about the social security and medicare tax can be found here.

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The third in series of infographics I am designing to illustrate the average federal tax rate applied to different salaries. This time I am graphing the average tax rates for married couples filing a joint tax return but with 2 incomes (same salary for each).

The difference between this graph and the couple with one income is that the the Social Security Tax cut off is now $213,600 (instead of $106,800), which increases their average SSN tax rate and their combined tax rates.

The income tax graph is created from the 2009 tax schedule for a couple filing jointly or qualifying widow(er):

which you can find from the IRS Tax Tables here while the information about the social security and medicare tax can be found here.

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The second in series of infographics I am designing to illustrate the average federal tax rate applied to different salaries. This time I am graphing the average tax rates for a married couple filing a joint tax return. I am assuming one income so the main change from the tax rate for singles is the amount of the standard deduction, 2 exemptions and the change to the income tax schedule. (Again, this graphic does not include any payroll taxes paid by the employer.)

If you take a look at your W-2 form you can see that there are 3 different taxes applied to salaries and wages:

The income tax graph is created from the 2009 tax schedule for a couple filing jointly or qualifying widow(er):

which you can find from the IRS Tax Tables here while the information about the social security and medicare tax can be found here.

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