Effective Tax Rates vs Marginal Tax Rates

Plus the Curmudgeon’s Tax Reform

Using the Congressional Budget Office definition of Effective Tax Rate of taxes paid divided by total income.

Case 1 – A hypothetical family of four, using 2015 tax rates.


Of course if they could itemize deductions their taxes and effective tax rate would be less.

Case 2 – Hillary & Bill Clinton, no children claimed, itemized deductions, $10,748,378.00 total income ($100.00 salary), 39% marginal tax rate.

Filing jointly, $2,242,022 itemized deduction, taxable income $8,352,507..
Total tax bill $3,236,975.00.

Using the CBO formula $3,236,975/$10,748,378 yields an Effective Tax Rate of 30.1%

OBTW – Of their $2,242,022 itemized deductions $1,042,000 was their charitable donations, $1 million of that went to the Clinton Family Foundation. The other $42,000 went to Desert Classic Charities.  These donations reduced their tax bill by $412,632.00.

PS: In 2015, Desert Classic Charities donated $700,000 to the Clinton Foundation.

The CBO provides this graph of historical effective tax rates, by quintile (20% of taxpayers).  The lowest 20% historically paid less than 10% and in 2005 paid less than 5%.  The middle 60% historically paid between 15% and 20% and in 2005 it was 10% – 18%.  While the top 20% typically pay about 25%.


Curmudgeon’s Tax Reform Plan

This leads to the curmudgeon’s  version of tax reform.  If the CBO would redo their historical calculations with:

  • Only taxpayers with income in excess of 1.5 x the poverty level.
  • Median Effective Tax Rate per Quintile vice Average.

Then the Curmudgeon’s tax plan would be:

  • 5 tax brackets, based on the quintiles, 
  • Deduct 1.5 x poverty level from your gross income, this is your taxable income,
  • Determine your tax bracket and multiple your taxable income by the percentage.
  • The result is your Base Federal Income Tax,
  • Your total Federal Income Tax would be the Base plus a prior year deficit surtax prorated between personal and business taxpayers and a historic deficit surtax that would pay off the historic deficit in 20 year.

The Curmudgeon’s business tax would be a percent of gross revenue, the value would be a revenue neutral value base on a 10 year analysis of business tax filings. Likewise this would be a base value plus the prior year deficit surtax and historic deficit surtax.


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