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
Trends in Corporate Economic Profits and Tax Payments, 1998 to 2017
May 9, 2023
Over recent decades, corporate economic profits have grown faster than the amounts that corporations pay in federal taxes. CBO examined the factors that explain why corporate tax payments have not grown with corporate economic profits.
Report
Options for Reducing the Deficit, 2023 to 2032--Volume II: Smaller Reductions
December 7, 2022
CBO issues a volume that contains short descriptions of 59 policy options that would each reduce the federal budget deficit by less than $300 billion over the next 10 years.
Report
Understanding Federal Estate and Gift Taxes
June 9, 2021
CBO describes estate and gift taxes, the people who pay them, the types of assets that make up taxable estates, and the model the agency uses to project estate and gift tax revenues in its baseline.
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
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.
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.