PART X.-THE DISTRIBUTION OF INCOME AND TAXES

HYPOTHETICAL TAX CALCULATIONS FOR SELECTED FAMILIES

The following table presents taxable income levels, values of the personal exemptions, standard deductions, and additional standard deductions for the elderly and the blind for tax years 1989 to 1998. The figures for 1994-98 are based on Congressional Budget Office projections.

TABLE 1. PERSONAL EXEMPTIONS, STANDARD DEDUCTIONS, AND TAXABLE INCOME LEVELS

Table 2 presents examples of tax liabilities for hypothetical taxpayers. The table presents 1993 Federal income and payroll tax burdens. The worker is assumed to bear both the employer and employee shares of FICA tax (7.65 percent for each). Taxpayers claim the earned income tax credit, if eligible, and they claim the standard deduction. They do not itemize. Income sources are listed for each example.

TABLE 2. EXAMPLES OF FEDERAL INCOME AND PAYROLL TAX LIABILITIES
OF HYPOTHETICAL TAXPAYERS, 1993

63-239

$100,000

Elderly couple filing joint return:

$10,000 3

Income tax FICA tax
liability

liability

-$1,434

$1,530

$96

2,513 4,590 7,103
5,513 7,650
19,493 10,042

2 Assumes one child, one earner and all income is wage income.

3 All income is Social Security.

0

855

4,755

11

-1,434

1,530

96

2,978 4,590 7,568

7,310

7,650

21,714

10,042

0

0

2,426

8,131

Total tax
liability

1,530

0

0

3,060

13,163

29,535

14,960

31,756

0

855

6,285

0

2,426

11,191

Overall av- Overall mar-
erage tax
ginal tax
rate (per- rate1 (per-
cent) cent)

0.9

22.0

24.5

28.1

0.9

23.4

27.8

30.2

0.0

2.9

12.4

The average tax rate is total tax liability divided by income plus the employer share of FICA. The marginal rate computations also count the employer share of FICA tax as income to the employee (for both payroll and income tax purposes). All calculations assume the taxpayer takes the standard deduction rather than itemized deductions.

0.0

8.1

21.7

14.2

28.1

40.2

30.5

$12,000 is Social Security, $12,000 is a taxable pension and $6,000 is taxable interest.

5 Same as above plus additional $10,000 of taxable interest and $10,000 of wages.

"If the marginal dollar of income is assumed to consist of wage income, the marginal tax rate would be 14.2 percent. This represents the FICA tax liability on this income.

If the marginal dollar of income is assumed to consist of wage income, the marginal tax rate would be 28.1 percent, representing both the income tax liability and the FICA tax liability on this income. $$7,500 is Social Security, $2,500 is taxable pension. 9$7,500 is Social Security, $7,500 is taxable pension, $15,000 is taxable interest. 10 Same as above plus $20,000 of wages.

14.2

28.1

40.2

33.4

If the marginal dollar of income is assumed to consist of wage income, the marginal tax rate would be 35.1 percent, representing both the income tax liability (22.5 percent marginal rate reflects the inclusion of 50 cents of Social Security benefits as taxable for each additional dollar of AGI) and the FICA tax liability on this income.

Source: Joint Committee on Taxation.

60.0

715.0

28.1

60.0

11 22.5

40.2