NCPA - National Center for Policy Analysis

Marginal Tax Rates Seesaw Due To Complex Tax Code

April 15, 1999

The marginal tax rate -- the highest rate that families pay on the last dollar earned -- is supposed to rise with income. But it doesn't. The marginal rate jumps up and down in chaotic fashion in a pattern American Enterprise Institute economist Kevin Hassett describes as a "skyline."

  • The marginal rate starts out at 21 percent for some low- income families, then it drops to zero for certain kinds of families earning about $30,000.
  • From there, it shoots back to 40 percent for some families earning about $80,000, then falls to 28 percent for families earning about $100,000 -- and continues in this seesaw pattern for wealthy families.
  • Experts say the reason for this lies with credits and deductions added to the tax code primarily in the 1990s.
  • Tax experts say that married women should be especially concerned by marginal rates because they affect the decision whether it pays to work outside the home and bring in that second paycheck.

Deductions which phase out as income rises include the earned income tax credit, the child tax credit; credits for college tuition, job training and graduate study; deductions for interest on student loans; as well as deductions for individual retirement accounts.

Source: Michael M. Weinstein, "The Tax Bite Comes With Saw Teeth," New York Times, April 15, 1999.


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