Tax Rates

The statutory tax rate structure, which is set by law, is one of the many features of the tax system that influence taxpayers’ behavior and that also contribute to the distribution of tax burdens across households. Other provisions in the tax code—including tax preferences and surtaxes—also affect taxpayers’ decisions and the distribution of taxes. CBO periodically analyzes two alternative measures of tax rates that are affected by many of those provisions: the average tax rate and the effective marginal tax rate.

The measure of average tax rates is similar for individuals and corporations. For individuals, CBO computes the average tax rate by dividing individual tax liability by before-tax income. For corporations, the average tax rate is calculated by dividing corporate tax liability by before-tax profits.

CBO’s measures of effective tax rates, however, vary by type of tax unit and form of income. The effective marginal tax rate for individuals is the percentage of an additional dollar of earnings that is unavailable because it is paid in taxes or offset by reduced benefits from government programs. For a corporation, the effective marginal tax rate is its tax burden on returns from a marginal investment (one that is expected to earn just enough, after taxes, to attract investors). Another measure—the effective marginal tax rate on capital income—is broader than the effective marginal corporate tax rate, because it also accounts for the taxes paid by individuals on interest, dividends, capital gains, and the profits of businesses not subject to the corporate income tax.

Report
Marginal Federal Tax Rates on Labor Income: 1962 to 2028
January 24, 2019
In this report, CBO projects, on the basis of current law, marginal federal tax rates on labor income from 2018 through 2028. So that current trends can be understood in a historical context, the projections are accompanied by rates from 1962.
Report
How Taxes Affect the Incentive to Invest in New Intangible Assets
November 15, 2018
CBO found that the tax burden on intangible assets is lower than that on tangible assets. In CBO’s estimation, the 2017 tax act increases the tax burden on research and development but reduces it on most other intangible assets.
Report
International Comparisons of Corporate Income Tax Rates
March 8, 2017
CBO examines corporate tax rates—the statutory rates, as well as average and effective marginal rates—and the factors that affect them for the United States and other G20 member countries in 2012.
Report
The 2016 Long-Term Budget Outlook
July 12, 2016
If current laws remained generally unchanged, the United States would face steadily increasing federal budget deficits and debt over the next 30 years—reaching the highest level of debt relative to GDP ever experienced in this country.
Working Paper
How CBO Estimates the Effects of the Affordable Care Act on the Labor Market: Working Paper 2015-09
December 7, 2015
This working paper describes the methods and calculations CBO used in its August 2015 baseline projections to estimate the effects of the Affordable Care Act on the labor market.
Report
Taxing Capital Income: Effective Marginal Tax Rates Under 2014 Law and Selected Policy Options
December 18, 2014
On average, the effective marginal tax rate on capital income is 18 percent, but that rate varies significantly by sector. In this report, CBO estimates effective rates under current law and eight policy options.