CONGRESS OF THE UNITED STATES

CONGRESSIONAL BUDGET OFFICE

January 2019

Marginal Federal 

Tax Rates on 

Labor Income: 

1962 to 2028

Individual 

Income and 

Payroll Taxes 

Combined

Percent

Individual 

Income Tax

Payroll Tax

Actual Projected

0

10

20

30

40

1962 1968 1974 1980 1986 1992 1998 2004 2010 2016 2022 2028
Notes

Unless otherwise indicated, all years referred to in this document are calendar years. 

Numbers in the text, tables, exhibits, and figures may not add up to totals because of rounding. 

When the rates specified in law include decimals, those more particular values are included instead of rounded values. 

The Congressional Budget Office created many of the exhibits in this report using individual income tax data collected by the 

Internal Revenue Service’s Statistics of Income Division. 

Estimates for 1987 and later are from CBO’s tax model. For more information about that model, see Congressional Budget 

Office, “An Overview of CBO’s Microsimulation Tax Model” (June 2018), www.cbo.gov/publication/54096. Estimates for 

1986 and earlier are from a federal tax calculator designed by Jon Bakija of Williams College. For details, see Jon Bakija, 

Documentation for a Comprehensive Historical U.S. Federal and State Income Tax Calculator Program (working paper, Williams 

College, August 2009), http://tinyurl.com/bakija (PDF, 485 KB).

The data underlying the exhibits and figures in this report are posted along with the report on CBO’s website (www.cbo.gov/

publication/54911).

www.cbo.gov/publication/54911
Abbreviations and Definitions

Abbreviations

ERTA: Economic Recovery Tax Act of 1981

TRA: Tax Reform Act of 1986

OBRA90: Omnibus Budget Reconciliation Act of 1990

OBRA93: Omnibus Budget Reconciliation Act of 1993

EGTRRA: Economic Growth and Tax Relief Reconciliation 

Act of 2001

JGTRRA: Jobs and Growth Tax Relief Reconciliation Act of 2003

ATRA: American Taxpayer Relief Act of 2012

ACA: Patient Protection and Affordable Care Act, the 

health care provisions of the Health Care and Education 

Reconciliation Act of 2010, and the effects of subsequent 

judicial decisions, statutory changes, and administrative 

actions—often referred to as the Affordable Care Act

2017 Tax Act: Public Law 115-97, originally titled the Tax 

Cuts and Jobs Act

Definitions

Marginal tax rate: The percentage of an additional dollar of earnings that is unavailable to an individual because it is paid in 

taxes.

Statutory tax rates: The rates set in law that apply to the last dollar of income.

Income taxes: For the purposes of this paper, income taxes refer to taxes paid under the individual income tax system as 

identified on filers’ tax forms such as the 1040. They do not include self-employment taxes determined on schedule SE, as those 

are identified as part of the payroll tax system.

Payroll taxes: For the purposes of this paper, payroll taxes are the taxes on earnings used to finance the Old-Age, Survivors, and 

Disability Insurance trust funds and the Hospital Insurance trust fund. Those taxes are collected through the Federal Insurance 

Contributions Act and the Self-Employment Contributions Act. They do not include other taxes typically collected through 

employers to finance social insurance programs, such as unemployment insurance.
Contents

Marginal Federal Tax Rates on Labor Income: 1962 to 2028 1

The Marginal Tax Rate on Labor Income Under the Federal Payroll Tax System 7

Exhibits 9

The Marginal Tax Rate on Labor Income Under the Federal Individual Income Tax System 13

Exhibits 15

The Dispersion of Marginal Individual Income Tax Rates 22

Exhibits 23

Combined Individual and Payroll Marginal Tax Rates for Hypothetical Families 28

Exhibits 29

Appendix A: Changes to the Federal Tax System 34

Appendix B: Data and Methods 37

About This Document 42
List of Exhibits

The Marginal Tax Rate on Labor Income Under the Federal Payroll Tax System 7

1. Marginal Tax Rate on Labor Income Under the Payroll Tax System 9

2. Statutory Rates on Labor Income Under the Payroll Tax System 10

3. Labor Income Subject to Payroll Tax as a Share of Total Labor Income 11

4. Share of Workers and Share of Earnings Below the OASDI Taxable Maximum 12

The Marginal Tax Rate on Labor Income Under the Federal Individual Income Tax System 13

5. Marginal Tax Rate on Labor Income Under the Individual Income Tax System 15

6. Statutory Rates for the Highest Earners of Labor Income Under the Individual Income Tax System 16

7. Share of Total Labor Income Subject to Individual Income Taxes 17

8. Individual Income Tax Brackets for a Single Filer 18

9. Statutory Individual Income Tax Rates for a Single Filer 19

10. Percentage of Returns Classified According to Their Statutory Individual Tax Rate 20

11. Marginal Tax Rate for a Hypothetical Married Couple With Two Children and Earnings Up to $100,000 Who File 

Jointly Under the Individual Income Tax System, 2018 21

The Dispersion of Marginal Individual Income Tax Rates 22

12. Marginal Income Tax Rates Under the Individual Income Tax System by Earnings Quintile 23

13. Distribution of Marginal Tax Rates Under the Individual Income Tax System by Earnings Decile, 2018 24

14. Marginal Tax Rates Under the Individual Income Tax System for Different Types of Families 25

15. Composition of Filings by Family Structure 26

16. Range of Marginal Individual Income Tax Rates 27

Combined Individual and Payroll Marginal Tax Rates for Hypothetical Families 28

17. Marginal Tax Rates for a Hypothetical Single Filer With No Children 29

18. Marginal Tax Rates for a Hypothetical Single Filer With One Child 30

19. Marginal Tax Rates for a Hypothetical Married Two-Earner Couple With No Children 31

20. Marginal Tax Rates for a Hypothetical Married Two-Earner Couple With Two Children 32

21. Marginal Tax Rates for Different Types of Families With Median Earnings 33
1

Marginal Federal Tax Rates on Labor Income: 1962 to 2028

Summary

The marginal federal tax rate on labor income is 

the percentage of additional income an individual 

earns that is paid in federal income taxes and payroll taxes. By reducing the compensation a worker 

retains, those taxes can affect people’s incentives to 

work: People tend to respond to higher marginal 

tax rates by working fewer hours or choosing not 

to participate in the labor force at all, whereas 

people respond to lower marginal tax rates by 

increasing their working hours and being more 

likely to participate in the labor force. Because of 

those effects on labor, the Congressional Budget 

Office’s estimates of the marginal tax rate on labor 

income inform the agency’s projections of economic activity. 

This report contains CBO’s projections of marginal federal tax rates on labor income from 

2018 through 2028 based on current law. So that 

current trends can be understood in a longer-term 

context, the projections are accompanied by historical rates that reach back to 1962 (the first year 

for which information is sufficient for calculating 

such rates). The agency has examined marginal tax 

rates using a two-pronged approach. First, using a 

simulation approach for a representative sample of 

workers, CBO estimates the economywide marginal tax rate under both the individual income 

and payroll tax systems and the distribution of 

marginal tax rates under the individual income 

tax system across the population. Second, the 

report shows how marginal tax rates under both 

the individual income and payroll tax systems for 

several different types of hypothetical families have 

evolved over time.

At the broadest level, that approach has yielded 

these conclusions:

• For payroll taxes, the economywide marginal 

rate on labor income grew rapidly between 

the early 1960s and the early 1980s and has 

remained fairly stable thereafter.

• For individual income taxes, that rate has 

fluctuated greatly over the past five decades.

• Marginal tax rates vary widely among families. 

The rates generally increase with earnings but, 

because of various features of the tax code, can 

differ significantly for families with similar 

earnings.

How Has the Economywide Marginal 

Tax Rate Changed Over Time?

Offering a different perspective from the marginal rate faced by individuals, the economywide 

marginal tax rate is the share of additional earnings that would be paid in taxes if all workers 

experienced an equal percentage increase in 

labor income. That rate, which incorporates the 

rules of the payroll tax system and the federal 

income tax system, also accounts for forms of 

labor compensation that are not subject to federal 

taxes—for instance, many fringe benefits. 

On the basis of its simulations, CBO estimates 

that the economywide marginal tax rate on labor 

income was 27 percent in 2018, consisting of 

18 percent from individual income taxes and 

9 percent from payroll taxes. That overall rate 

represents a decrease from 29 percent in 2017, 

largely due to the enactment of Public Law 115-

97, referred to here as the 2017 tax act. 

CBO expects the marginal rate on labor income to 

rise slowly over the next several years, as economic 

growth pushes more income into higher tax 

brackets. In 2026, after many of the changes that 

the 2017 tax act made to individual income tax 

provisions are set to expire, the rate is projected 

to rise by 2 percentage points: For the concluding 

two years of the projection period, the rate continues to gradually drift upward, to 31 percent (see 

Summary Figure 1).

Since 1962, influenced principally by changes in 

tax laws and growth in labor income, the marginal tax rate on labor income has ranged from 

about 20 percent to about 35 percent. The rate 

began the period at about 20 percent, then rose 

steadily throughout the 1960s and 1970s, before 

peaking at about 35 percent in 1981. The rate fell 

to about 28 percent by 1988, and since then, it 
2

January 2019 MARGINAL FEDERAL TAX RATES ON LABOR INCOME: 1962 TO 2028

has fluctuated in a fairly narrow range, between 

26 percent and 30 percent. 

How Has the Distribution of Marginal 

Individual Income Tax Rates Varied Over Time?

The distribution of marginal tax rates results from 

many provisions in the individual income tax 

system. The broadest set of provisions consists of 

statutory income tax rates, which create marginal 

tax rates that ranged from 10 percent to 37 percent in 2018. In addition, many deductions and 

credits apply over specified income ranges. For 

taxpayers in those ranges, the phasing in and out 

of those items as income rises causes the marginal 

rate to differ from the statutory rate. For example, 

taxpayers whose income makes them eligible for 

the earned income tax credit could see a marginal 

rate as low as −45 percent as the credit phases in, 

meaning that their income after taxes goes up by 

an additional 45 cents for each additional dollar 

earned. In contrast, taxpayers with income in the 

range where the credit phases out could face a 

marginal tax rate of 21.06 percent from the effect 

of that phaseout, in addition to the applicable 

statutory tax rate.

Marginal tax rates under the individual income 

tax system have varied widely over time among 

taxpayers, depending on their income and family 

structure. In the 1960s and 1970s, despite the 

wider range in statutory tax rates that existed, marginal tax rates were more tightly clustered than in 

recent years. The increase in the dispersion reflects 

in part the growing importance of tax provisions 

targeted to different types of households, such 

as the earned income tax credit and the child tax 

credit. 

Summary Figure 1.

Marginal Tax Rates on Labor Income Under the Individual Income and Payroll Tax Systems

Percent

Actual Projected

0

10

20

30

40

1962 1968 1974 1980 1986 1992 1998 2004 2010 2016 2022 2028

Individual Income 

and Payroll Taxes 

Combined

Individual 

Income Tax

ERTA

TRA

OBRA90 OBRA93 JGTRRA

ATRA and ACA 

Surtaxes

Temporary Reduction in 

the Employee’s Share of 

FICA Taxes

Increases From 1962 to 

1990 Mostly From Multiple 

Pieces of Legislation

Expiration of Provisions 

in the 2017 Tax Act

EGTRRA

Payroll Tax

2017 

Tax Act

Source: Congressional Budget Office, using individual income tax data collected by the Internal Revenue Service’s Statistics of Income 

Division. 

The economywide marginal tax rate is the change in taxes divided by the change in labor income that follows from a 1 percent 

increase in labor income for each tax return. For details, see Appendix B.

Labor income consists primarily of wages and salaries but also includes nonwage compensation such as employers’ contributions to 

employment-based health insurance. For details, see Appendix B.

Projections are consistent with those in CBO’s The Budget and Economic Outlook: 2018 to 2028, published in April 2018.

2017 Tax Act = P.L. 115-97, originally titled the Tax Cuts and Jobs Act; ACA = Affordable Care Act; ATRA = American Taxpayer Relief 

Act of 2012; EGTRRA = Economic Growth and Tax Relief Reconciliation Act of 2001; ERTA = Economic Recovery Tax Act of 1981; 

FICA = Federal Insurance Contributions Act; JGTRRA = Jobs and Growth Tax Relief Reconciliation Act of 2003; OBRA90 = Omnibus 

Budget Reconciliation Act of 1990; OBRA93 = Omnibus Budget Reconciliation Act of 1993; TRA = Tax Reform Act of 1986.
3

January 2019 MARGINAL FEDERAL TAX RATES ON LABOR INCOME: 1962 TO 2028

In 2018, CBO estimates, one-fifth of tax filers had 

marginal individual income tax rates of zero percent and below (as some taxpayers received a net 

income subsidy from refundable credits), whereas 

one-fifth faced rates above 22 percent. (In addition, most earners faced a marginal payroll tax rate 

of 15.3 percent.) Over the coming decade, CBO 

expects economywide marginal tax rates to rise 

and the dispersion of rates to increase, especially 

around the middle of the income distribution. 

How Have Marginal Tax Rates for 

Different Families Varied Over Time?

Marginal tax rates are generally higher for people 

with higher income, in large part because statutory 

tax rates rise with income. And some tax benefits phase out for high-income taxpayers. Family 

structure is another key determinant of marginal 

tax rates, as statutory rates and key tax credits vary 

for different types of families. 

To show how marginal tax rates for different 

families vary, CBO has computed illustrative 

examples. Although drawing overall conclusions 

about the tax system from the examples is difficult, 

they show the importance of different features 

of the system to different families. The agency 

constructed four hypothetical families of different types: a two-earner married couple with no 

children; a two-earner married couple with two 

children; an unmarried parent with one child; 

and a single childless individual. For each type of 

family, the agency assumed income (consisting 

entirely of earnings) at three different levels: the 

median income (for that type of family), half that, 

and twice the median. In each instance, CBO 

computed marginal individual income and payroll 

tax rates each year from 1962 to 2028. 

Marginal tax rates vary significantly for taxpayers 

at different income levels. For example, in 2018, 

a married childless couple with earnings equal 

to the median income had a marginal rate under 

the individual income and payroll tax systems of 

37 percent, whereas a married childless couple 

with earnings equal to half of the median had a 

marginal rate of 27 percent. For most of the hypothetical families, marginal rates are expected to be 

stable for the next several years and then to rise, in 

part because of real (inflation-adjusted) growth in 

income and in part because most of the changes to 

individual income tax provisions in the 2017 tax 

act are set to expire after 2025.

Marginal tax rates for most of the hypothetical families have been fairly steady for the past 

30 years, with some fluctuations resulting from 

changes in the statutory rate structure. But for 

some, marginal rates have been more volatile 

because changes in median income have moved 

them into a higher tax bracket or have moved 

them into or out of the range for a tax credit.

Background

The marginal tax rate on labor income, through 

its incentive effects, is a key determinant of the 

effect of the tax system on the number of hours 

worked. Many of CBO’s analyses of the economic 

effects of changes to tax and benefit policies start 

by estimating how the change affects marginal tax 

rates. That calculation, coupled with the agency’s analysis of research about the change in the 

labor supply resulting from a change in tax rates, 

produces an estimate of the change in the overall 

supply of labor. For example, CBO’s estimates of 

the economic effects of the 2017 tax act and of the 

Affordable Care Act were based in part on analyses 

of those laws’ effects on marginal tax rates on labor 

income.1

The Marginal Tax Rate on Labor Income

The marginal tax rate on labor is the percentage of 

additional labor income paid in taxes. The marginal tax rate is measured by simulating the impact 

of an additional 1 percent of labor income on an 

individual’s taxes; the rate is calculated by dividing the additional tax burden by the income. For 

example, if a filer with $10,000 of earnings is in 

the 10 percent bracket and earned another 1 percent of income ($100), the extra earnings would 

increase his or her taxes by $10, and the marginal 

tax rate would be 10 percent. (In contrast, the 

average tax rate is measured by dividing the total 

taxes owed by total income earned.) 

CBO uses a broad definition of labor income: It 

includes earnings from wages and salaries; fringe 

benefits, such as employers’ contributions to 

employment-based health insurance; and a portion 

of the earnings of sole proprietorships and partnerships. The composition of labor income affects 

the marginal tax rate, as different forms of labor 

1. For more details about those analyses, see Congressional 

Budget Office, The Budget and Economic Outlook: 2018 

to 2028 (April 2018), Appendix B, www.cbo.gov/

publication/53651, and Edward Harris and Shannon 

Mok, How CBO Estimates the Effects of the Affordable 

Care Act on the Labor Market, Working Paper 2015-09 

(Congressional Budget Office, December 2015), 

www.cbo.gov/publication/51065.
4

January 2019 MARGINAL FEDERAL TAX RATES ON LABOR INCOME: 1962 TO 2028

income receive different tax treatment. For example, many fringe benefits are not subject to federal 

taxes, so additional labor income in that form is 

untaxed. 

Factors Affecting Marginal Rates

Many features of the federal tax system affect 

marginal tax rates on labor income. The most basic 

sets of provisions are the income and payroll tax 

rates laid out in law (that is, the statutory tax rates) 

and the levels of income to which those rates apply 

(that is, the tax brackets): 

• The federal income tax in 2018 had seven 

statutory rates (10 percent, 12 percent, 

22 percent, 24 percent, 32 percent, 35 percent, 

and 37 percent) that applied to different levels 

of taxable income. 

• Under the payroll tax system, employers 

and employees each pay a 6.2 percent tax on 

earnings up to a certain amount for the OldAge, Survivors, and Disability Insurance Trust 

Funds and a 1.45 percent tax on all earnings 

for the Hospital Insurance Trust Fund. An 

additional tax of 0.9 percent applies to earnings 

in excess of $200,000 ($250,000 for a married 

couple filing a joint return).

Certain deductions, exemptions, and tax credits 

reduce the taxes that eligible taxpayers owe and 

increase their after-tax income; if the amounts 

are based on the recipients’ income, those provisions affect marginal tax rates. The provisions 

include the earned income tax credit, the child tax 

credit, personal exemptions, and certain itemized 

deductions.

Marginal tax rates are also determined by factors 

other than federal taxes. Programs providing cash 

and in-kind benefits, referred to as transfers, that 

target assistance to people of limited means can 

affect marginal tax rates. When lawmakers target 

assistance to low-income people, that assistance 

declines as income rises. That decline in transfer 

payments is an implicit marginal tax on additional 

labor income. In addition, most states and some 

localities levy income taxes, which increase marginal tax rates. In this report, the impact of benefit 

programs on marginal tax rates is not examined, 

nor is the impact of state and local income taxes.2

Aggregating Marginal Rates

Marginal rates can be understood in the context of 

a single taxpayer, but this paper focuses on aggregated measures. One such measure is the economywide marginal tax rate, or the share of additional earnings that would be paid in taxes if all 

workers experienced an equal percentage increase 

in labor income. Equivalently, the economywide 

marginal rate can be thought of as the average 

marginal tax rate across all taxpayers, with each 

taxpayer weighted by his or her earnings. That 

measure is generally used in analyses of the macroeconomic effects of tax changes because changes in 

2. For an analysis of the effects of transfers and state 

income taxes on marginal tax rates, see Congressional 

Budget Office, Effective Marginal Tax Rates for Low- and 

Moderate-Income Workers in 2016 (November 2015), 

www.cbo.gov/publication/50923.

the number of hours worked affect total national 

income in proportion to the hourly wages of the 

affected individuals.

CBO also examines marginal rates averaged across 

subgroups of taxpayers, such as specific family 

types or deciles of taxpayers in the earnings distribution. In those cases, CBO generally computes 

averages by giving each taxpayer equal weight. 

That person-weighted measure represents the experience of a typical taxpayer.

Marginal Tax Rates’ Effects on 

the Incentives to Work 

When deciding how much to work, people consider not only the additional earnings from working more hours but also the resulting difference in 

total after-tax income. For example, increases in 

tax rates have two opposing effects among people 

already working: 

• When higher marginal tax rates decrease 

additional after-tax earnings from working 

more hours, people tend to work fewer hours 

because other uses of their time become 

relatively more attractive. Economists refer to 

that behavior as the substitution effect.

• When total after-tax income drops from what 

people would have otherwise earned because 

of higher average tax rates, people tend to 

work more hours because having less after-tax 

income requires additional work to maintain 

the same standard of living. Economists refer to 

that behavior as the income effect.
5

January 2019 MARGINAL FEDERAL TAX RATES ON LABOR INCOME: 1962 TO 2028

On balance, the first effect appears to be greater 

than the second.3 The effects on the labor supply 

are not uniform, however. Groups of workers 

respond differently to changes in taxes and transfers. For example, married women have historically 

responded more to changes in marginal tax rates 

than have men in their prime working years. 

3. For a discussion of the evidence on which that assessment 

is based and information on how the responsiveness of 

the labor supply varies by income and marital status, see 

Congressional Budget Office, How the Supply of Labor 

Responds to Changes in Fiscal Policy (October 2012), 

www.cbo.gov/publication/43674; and Robert McClelland 

and Shannon Mok, A Review of Recent Research on 

Labor Supply Elasticities, Working Paper 2012-12 

(Congressional Budget Office, October 2012), 

www.cbo.gov/publication/43675.

Marginal rates can affect labor income through 

channels other than hours worked. In the short 

term, for example, people’s decisions about how 

hard to work and how to respond to employers’ 

choices about dividing labor income into cash and 

fringe benefits are based in part on marginal tax 

rates. In the longer term, marginal tax rates can 

influence people’s decisions about the level of education they attain and their choice of occupation.

Because of those various effects, marginal rates 

are an important determinant of how the tax 

system is likely to change labor market behavior. 

Minimizing tax-induced distortions is one goal of 

a tax system. Another is raising enough revenues 

to finance the federal government’s spending. And 

the tax system should raise revenues in a manner 

that is equitable, although there is no consensus 

definition of the term. Goals can also include 

minimizing complexity and the costs of complying with and collecting taxes. Those objectives 

are often in conflict, however, and changes to tax 

policy that improve one dimension often worsen 

another. The phasing out of many tax preferences 

with income illustrates those trade-offs. Phasing 

out a tax benefit increases marginal tax rates and 

adds complexity to the tax system; but at the 

same time, the phasing out of a benefit causes 

revenues to be higher than they otherwise would 

be and generally increases the progressivity of the 

tax system, by raising taxes on higher-income 

taxpayers—a result that many would characterize 

as more fair.

7

The Marginal Tax Rate on Labor Income

Under the Federal Payroll Tax System

Background

The marginal payroll tax rate is an important 

component of the economywide marginal tax 

rate on labor income. Most income from wages 

and self-employment is subject to payroll taxes, 

which are the primary source of funding for Social 

Security’s Old-Age, Survivors, and Disability 

Insurance (OASDI) program and Medicare’s 

Hospital Insurance (HI) program. In 2018, over 

96 percent of wages and self-employment earnings 

were from jobs covered by OASDI. 

Employers and employees share responsibility for 

the OASDI and HI taxes. In assessing the effects 

of those taxes, CBO allocates the employee’s share 

of payroll taxes to the households paying those 

taxes. The agency also allocates the employer’s 

share of payroll taxes to employees—a view that 

implies an employee’s salary and wages would be 

correspondingly higher if payroll taxes did not 

exist. 

Most labor income comes in forms of compensation that are subject to payroll taxes. But certain 

forms of labor income, such as many employerprovided fringe benefits, are exempt from taxation. 

In addition, some labor income is never reported 

to the tax authorities. For example, a substantial 

proportion of proprietors’ income, which consists 

largely of labor income, is estimated to go unreported to the tax system. 

Payroll taxes reduce returns from working just 

as income taxes do. Consequently, they affect 

people’s decisions about how much to work. But 

because earning more and paying more in Social 

Security taxes (up to the taxable maximum) would 

entitle workers to higher future Social Security 

benefits, the effect of the taxes paid during an individual’s working years may be offset somewhat by 

the promise of those future higher benefits.1 The 

net effect—the true “tax”—is the portion of the 

incremental OASDI tax not offset in the future 

by increased benefits. Even so, some people may 

not be aware of the linkage or give it great weight 

in their decisions to work in the current period. 

1. In some cases, benefits are only loosely based on 

one’s work record—for instance, married or widowed 

beneficiaries can receive benefits based on their spouse’s 

work history, rather than their own. In other cases, 

adding earnings can greatly increase benefits, for workers 

with few years of earnings, for instance.

For simplicity, CBO did not attempt to divide 

the tax into its gross and net components, so this 

report presents marginal payroll tax rates without 

accounting for future benefits. 

The proper treatment of the HI tax is less ambiguous. Under the Medicare program, once workers 

have earned credit for 40 quarters of contributions, they are eligible to start receiving the total 

benefit at age 65. In 2018, workers received a 

credit for each $1,320 in earnings and could accumulate up to four credits per year. Because workers 

receive no benefits for earning above $5,280 per 

year, any amount beyond that is a tax. Once workers have accumulated 40 quarters, any additional 

HI tax paid over their lifetime does not affect their 

benefits. Thus, the HI portion of payroll taxes 

is much closer to a pure tax than is the OASDI 

portion.

Key Points

The economywide marginal payroll tax rate on 

labor income grew rapidly between the early 1960s 

and the early 1980s and has remained fairly stable 

thereafter. CBO projects the marginal rate to 

decline slightly in the next decade.
8

January 2019 MARGINAL FEDERAL TAX RATES ON LABOR INCOME: 1962 TO 2028

Statutory tax rate increases were the main cause of 

the increases between the early 1960s and the early 

1980s. Statutory rates have been largely stable 

since then.

Changes to the composition and distribution of 

labor income have lowered the economywide marginal payroll tax rate over time and are projected 

to continue to do so. 

• The composition of labor income has changed 

so that the share of labor income subject to 

payroll taxes has declined since the 1960s, 

causing the economywide marginal payroll tax 

rate to be lower than it would otherwise be; 

CBO projects that share to be relatively stable 

for the next 10 years.

• The percentage of earnings below the OASDI 

taxable maximum has dropped since the early 

1980s, causing the economywide marginal 

payroll tax rate to be lower than it would 

otherwise be. CBO projects that share to 

continue to fall for the next 10 years.
9

January 2019 MARGINAL FEDERAL TAX RATES ON LABOR INCOME: 1962 TO 2028

The estimated economywide marginal payroll 

tax rate on labor income (the share of additional 

earnings that would be paid in payroll taxes if 

all workers experienced an equal percentage 

increase in labor income) in 2018 was 8.7 percent. That rate is lower than the 15.3 percent 

statutory rate because a portion of earnings 

was above the taxable maximum for OASDI 

and some components of labor compensation, 

such as fringe benefits, are not subject to federal 

payroll taxes. 

CBO projects that rate to decline slightly over 

the next decade, to 8.6 percent in 2028, largely 

because, by the agency’s estimates, an increasing 

share of earnings will go to people whose earnings are in excess of OASDI’s taxable maximum.

From 1962 through 1990, the combined 

OASDI and HI tax rate increased steadily, from 

1.9 percent to 9.0 percent, mostly because of 

legislation that raised the statutory tax rate and 

the taxable maximum. The marginal tax rate 

remained relatively stable throughout the 1990s 

and 2000s, with a slight decline resulting from a 

greater concentration of wages above the taxable 

maximum. 

A temporary tax cut reduced the statutory 

OASDI rate in 2011 and 2012, causing a concurrent drop in the marginal rate. That decline 

was reversed in 2013, with the expiration of the 

tax cut and the imposition of an additional statutory HI tax of 0.9 percent on high earnings. ♦

Exhibit 1.

Marginal Tax Rate on Labor Income Under the Payroll Tax System

Percent

Actual Projected

0

5

10

15

20

1962 1968 1974 1980 1986 1992 1998 2004 2010 2016 2022 2028

Source: Congressional Budget Office, using individual income tax data collected by the Internal Revenue Service’s Statistics of Income 

Division. 

The economywide marginal tax rate is the change in taxes divided by the change in labor income that follows from a 1 percent 

increase in labor income for each tax return. For details, see Appendix B.

Labor income consists primarily of wages and salaries but also includes nonwage compensation such as employers’ contributions to 

employment-based health insurance. For details, see Appendix B.

Projections are consistent with those in CBO’s The Budget and Economic Outlook: 2018 to 2028, published in April 2018.
10

January 2019 MARGINAL FEDERAL TAX RATES ON LABOR INCOME: 1962 TO 2028

Statutory payroll tax rates rose substantially 

between the early 1960s and the early 1980s, 

contributing to the rise in marginal tax rates. 

A statutory payroll tax rate of 15.3 percent 

applies to most income from wages and selfemployment. Those payroll taxes help fund 

Social Security’s OASDI program and Medicare’s 

HI program. Employers and employees each 

pay a 6.2 percent OASDI tax on earnings up 

to a certain amount ($128,400 in 2018) and a 

1.45 percent HI tax on all earnings. Beginning 

in 2013, workers with earnings above certain amounts ($200,000 for individuals and 

$250,000 for married couples) pay an additional 

0.9 percent HI tax on earnings above those 

amounts. (The effects of that additional HI tax 

are not shown in the figure, because the tax generally applies at earnings levels above the OASDI 

taxable maximum.)

The current rate of 15.3 percent has been in 

place since 1991 (with the exception of the 

temporary 2 percentage-point reduction in 

2010 and 2011). Before that point, a series of 

laws incrementally raised the OASDI tax rate 

from 6.0 percent in 1960 to 12.4 percent. The 

HI tax took effect in 1966 at 0.7 percent, split 

evenly between the employer and the employee. 

The rate was gradually increased until it reached 

2.9 percent in 1986, and it then remained at 

that level until 2013, when the additional tax 

first became applicable to high earners. For all 

other workers, however, the HI tax rate remains 

at 2.9 percent. ♦ 

Exhibit 2.

Statutory Rates on Labor Income Under the Payroll Tax System

Percent

●

●

●

●

●

Actual Projected

0

5

10

15

20

1962 1968 1974 1980 1986 1992 1998 2004 2010 2016 2022 2028

Social Security Amendments of 1961 gradually increased the OASDI tax rate from 6.0 in 1961 to 9.25 in 1968. 

Social Security Amendments of 1965 created the HI tax and gradually 

increased the combined OASDHI rate to 11.3 in 1987 in seven steps.

Social Security Amendments of 1977 gradually increased the OASDHI tax rate to 15.3 in 1990.

Social Security Amendments of 1983 accelerated increases in the tax rate enacted in 1977.

The 2010 Tax Relief Act reduced the OASDI tax rate by 2 percentage points in 2011. 

Subsequently, the reduction was extended for an additional year.

Social Security Amendments of 1967 gradually increased the combined OASDHI tax rate to 11.8 in 1987 in seven steps.

Source: Congressional Budget Office.

From 1962 to 1983, the combined employee-employer tax rate on wages and salaries differed from the rate on self-employment 

earnings. In those cases, the rate on wages and salaries is displayed.

HI = Hospital Insurance; OASDHI = Old-Age, Survivors, Disability, and Health Insurance; OASDI = Old-Age, Survivors, and Disability 

Insurance.
11

January 2019 MARGINAL FEDERAL TAX RATES ON LABOR INCOME: 1962 TO 2028

The share of labor income subject to payroll taxes 

has declined since 1962, making the increases in 

economywide marginal payroll tax rates smaller than 

they would have been otherwise. In 2018, 81 percent 

of labor income was subject to at least some portion 

of payroll taxes. The remaining 19 percent was not 

subject to federal payroll taxes because it was paid in 

the form of nontaxable fringe benefits, was earned 

by workers in jobs not covered by the Social Security 

or Medicare systems, or was not reported to the tax 

authorities. (Labor income in excess of the OASDI 

taxable maximum is considered subject to taxation 

here because the HI tax applies to that income.) 

CBO expects the share of labor income subject 

to payroll taxes to be fairly constant over the next 

decade. By the agency’s projections, small increases 

in the share of compensation devoted to employment-based health insurance will be offset by declines 

in other fringe benefits. 

Over the past several decades, the share of labor 

income subject to payroll taxes declined from around 

90 percent to around 80 percent, because a greater 

share of compensation came from sources not subject 

to taxes, especially payments for employment-based 

health insurance premiums. That decline occurred 

despite changes in law that reduced the number of 

jobs not covered by the Social Security or Medicare 

systems. Income from self-employment has been a 

fairly constant share of labor income over the period. 

The changes in the portion of labor income subject to 

taxes affect the economywide marginal tax rate. CBO 

estimates that the composition of a marginal dollar of 

labor income is identical to the overall composition 

of labor income, with one exception: Only a small 

portion of marginal labor income takes the form of 

employment-based health insurance, because those 

benefits are usually offered in a fixed amount and a 

worker earning additional income would have little 

flexibility to change them in the near term. ♦

Exhibit 3.

Labor Income Subject to Payroll Tax as a Share of Total Labor Income

Percent

Actual Projected

0

25

50

75

100

1962 1968 1974 1980 1986 1992 1998 2004 2010 2016 2022 2028

Source: Congressional Budget Office.

Labor income consists primarily of wages and salaries but also includes nonwage compensation such as employers’ contributions to 

employment-based health insurance. For details, see Appendix B.

Projections are consistent with those in CBO’s The Budget and Economic Outlook: 2018 to 2028, published in April 2018.
12

January 2019 MARGINAL FEDERAL TAX RATES ON LABOR INCOME: 1962 TO 2028

The percentage of earnings below the OASDI taxable maximum has dropped since the early 1980s, 

causing the economywide marginal payroll tax rate 

to be lower than it would have been otherwise. 

(Workers in jobs covered by the OASDI system 

with total earnings below the taxable maximum 

face a higher marginal payroll tax rate than workers with higher earnings.)

In 2018, 94 percent of workers in jobs covered 

by the OASDI system had all of their earnings 

below the taxable maximum ($128,400). In total, 

82 percent of covered earnings was below the 

taxable maximum. CBO projects that the share of 

workers with earnings above the taxable maximum 

will remain stable through 2028 but that earnings 

growth will be more rapid for high earners than for 

low earners. Consequently, the share of earnings 

below the taxable maximum is projected to drop 

by 2 percentage points by 2028.

In the 1960s and 1970s, several laws raised the 

taxable maximum. Those changes caused both the 

share of workers and the share of earnings below 

the maximum to increase, resulting in an increase 

in the economywide marginal rate. 

Starting in 1982, the taxable maximum was set to 

grow with changes in overall wages according to 

an automatic formula. Since that time, the share 

of earners with income in excess of the taxable 

maximum has remained relatively stable, but the 

earnings of those workers have grown more rapidly 

than average wages in the economy. Consequently, 

the share of earnings subject to the OASDI tax has 

declined. ♦

Exhibit 4.

Share of Workers and Share of Earnings Below the OASDI Taxable Maximum

Percent

Actual Projected

0

20

40

60

80

100

1962 1968 1974 1980 1986 1992 1998 2004 2010 2016 2022 2028

Earnings Subject to OASDI Tax

Workers With Earnings That Do Not Exceed the Taxable Maximum

Source: Congressional Budget Office, using individual income tax data collected by the Internal Revenue Service’s Statistics of Income 

Division. 

Projections are consistent with those in CBO’s The Budget and Economic Outlook: 2018 to 2028, published in April 2018.

OASDI = Old-Age, Survivors, and Disability Insurance.
13

The Marginal Tax Rate on Labor Income

Under the Federal Individual Income Tax System

Background

Most labor income is subject to the individual income tax. The marginal tax rate faced by 

a taxpayer depends on many provisions of the 

individual income tax law as well as the taxpayer’s 

characteristics—including the amount of income, 

marital status, and the presence of children.

Tax Liability

To determine federal income tax liability, a taxpayer first computes taxable income. Although 

most types of income are taxable, some (such as 

public assistance) are not taxed at all, and others 

(such as Social Security) are only partially taxed. 

Next, a taxpayer subtracts allowable adjustments 

(such as contributions to individual retirement 

accounts) and deductions to determine taxable 

income. A taxpayer can either claim the standard 

deduction (a flat dollar amount) or itemize deductions for certain expenses (such as home mortgage 

interest or charitable contributions). Before 2018, 

taxpayers could claim exemptions for themselves 

and their dependents, but the 2017 tax act temporarily repealed those exemptions for 2018 through 

2025.

The taxpayer’s income tax liability is then calculated by applying a schedule of statutory tax rates 

to taxable income. For any taxpayer, the portion 

of taxable income that falls within a given bracket 

faces the statutory tax rate for that bracket. 

The income tax liability can be reduced by any 

credits for which the taxpayer is eligible. Credits 

can be either nonrefundable or refundable. A 

nonrefundable tax credit offsets an individual’s tax 

liability, reducing it dollar for dollar. A refundable 

tax credit also offsets tax liabilities, but eligible 

individuals and businesses receive the full amount 

of the credit even if they do not have any taxes 

to offset. As a result, they receive money from 

the government, on net, rather than owing taxes. 

Examples of tax credits include the fully refundable earned income tax credit and the partially 

refundable child tax credit.

Factors Affecting Marginal Rates

A taxpayer’s family situation affects the marginal 

tax rate because it alters income tax liability. 

Marital status matters because statutory rates apply 

at different income levels depending on whether 

a taxpayer files as single, a head of household (an 

unmarried person who covers most of the costs 

of maintaining a household for his or her dependents), or married; in addition, the amount of the 

standard deduction also varies with marital status. 

The number and age of dependents, together 

with certain other criteria, determine eligibility 

for various credits. Not all families are required to 

file income tax returns, although many families 

with income below the filing threshold still file tax 

returns to receive refundable credits. 

Although many provisions in the individual 

income tax system affect marginal tax rates, some 

apply to a relatively narrow group of taxpayers, 

whereas others are wider in scope. The broadest 

set of provisions is the statutory income tax rate 

brackets. In addition to the set of statutory rate 

brackets, many deductions and credits apply 

only over specified income ranges. For taxpayers 

in those ranges, the phasing in and phasing out 

of those items causes the marginal rates to differ 

from the applicable statutory rates. In such cases, 

marginal tax rates equal the sum of the taxpayer’s 

statutory rate and all applicable phase-in or 

phaseout rates. 

Individual income tax law has changed dramatically over the past 55 years, with the top statutory 

rate rising and falling several times. Numerous 

legislative changes have altered the number of 

brackets and corresponding rates, introduced or 

altered deductions and exemptions, and created 

tax credits with phase-ins and phaseouts that affect 

the marginal tax rates faced by some families. 
14

January 2019 MARGINAL FEDERAL TAX RATES ON LABOR INCOME: 1962 TO 2028

Key Points

The economywide individual marginal income tax 

rate on labor income has fluctuated greatly over 

the past five decades. 

• The rate grew rapidly in the 1960s and 1970s 

in response to high inflation and an unindexed 

tax structure.

• Changes to tax policy in the early 1980s 

substantially lowered marginal tax rates.

• Since then, the individual marginal tax rate 

has risen in response to real growth in income, 

although that trend has been offset through 

periodic legislative changes to the tax code.

• CBO projects the marginal rate to increase 

over the next decade, particularly after 2025, 

as many of the changes that the 2017 tax act 

made to individual income tax provisions 

expire.

• Changes to the composition and distribution 

of labor income have affected the marginal 

individual income tax rate.

• The share of labor income subject to income 

taxes has declined since the 1960s, causing the 

economywide marginal income tax rate to be 

lower than it would otherwise be, but CBO 

projects that share to be relatively stable for the 

next 10 years.

• The percentage of earnings accruing to high 

earners has increased since the early 1980s, 

causing the economywide marginal income tax 

rate to be higher than it would otherwise be. 

CBO projects that share to continue to rise for 

the next 10 years.

The structure of the individual income tax system 

has evolved substantially over time in ways that 

have affected the marginal tax rate. 

• In the 1960s and 1970s, the tax code had 

many statutory brackets covering a wide range 

of income, but the rate structure was greatly 

simplified in the 1980s.

• Some elements of the tax code, particularly 

the presence of tax credits with phase-ins 

and phaseouts tied to earnings, have caused 

some filers to face marginal rates that are 

very different from their statutory rates. The 

importance of such provisions has increased 

substantially.
15

January 2019 MARGINAL FEDERAL TAX RATES ON LABOR INCOME: 1962 TO 2028

In 2018, CBO estimates, the economywide marginal 

income tax rate on labor income was 18.4 percent. 

That rate is about 2 percentage points lower than in 

2017, principally because of the 2017 tax act. CBO 

expects the marginal rate on labor income to rise 

slowly over the next several years—largely reflecting 

the effects of real income growth’s moving more 

income into higher tax rate brackets, often referred to 

as real bracket creep. In CBO’s projections, the rate 

rises by 2.2 percentage points in 2026, after changes 

to many individual provisions of the 2017 tax act 

expire, and then continues to gradually drift upward, 

reaching 22.1 percent by 2028. 

Over the past 55 years, the marginal income tax 

rate on labor income has ranged from 17 percent 

to 28 percent. The marginal rate peaked in 1981, 

because high inflation in much of the 1970s pushed 

more taxpayers into high tax brackets. The Economic 

Recovery Tax Act of 1981 caused the thresholds for 

tax brackets, personal exemptions, and the standard 

deduction to be adjusted annually for inflation. 

That legislation in 1981 and later tax legislation 

in 1986 had the combined effect of lowering the 

marginal tax rate by about 8 percentage points. The 

marginal rate rose throughout the 1990s, driven both 

by legislative changes and by rapid growth in income 

for the highest-income taxpayers. Marginal rates fell 

again in the early 2000s, as tax law changes in 2001 

and 2003 took effect. 

Since 2003, the marginal income tax rate has generally crept up. Between 2009 and 2017, the rate 

rose by 1.9 percentage points. Much of that increase 

stemmed from the enactment of the American 

Taxpayer Relief Act of 2012, which increased rates 

for the highest-income taxpayers. ♦

Exhibit 5.

Marginal Tax Rate on Labor Income Under the Individual Income Tax System

Percent

Actual Projected

0

10

20

30

1962 1968 1974 1980 1986 1992 1998 2004 2010 2016 2022 2028

Source: Congressional Budget Office, using individual income tax data collected by the Internal Revenue Service’s Statistics of Income 

Division. 

The economywide marginal tax rate is the change in taxes divided by the change in labor income that follows from a 1 percent 

increase in labor income for each tax return. For details, see Appendix B.

Labor income consists primarily of wages and salaries but also includes nonwage compensation such as employers’ contributions to 

employment-based health insurance. For details, see Appendix B.

Projections are consistent with those in CBO’s The Budget and Economic Outlook: 2018 to 2028, published in April 2018.
16

January 2019 MARGINAL FEDERAL TAX RATES ON LABOR INCOME: 1962 TO 2028

Statutory tax rates are an important determinant 

of the marginal tax rate. For any taxpayer, the 

portion of taxable income that falls within a 

given bracket faces the statutory tax rate for that 

bracket. The top statutory rate is the tax rate 

that applies to the last dollar of earnings for the 

highest-income earners. 

Over the past 50 years, nine major tax laws 

have changed the top statutory tax rate. Most 

recently, the 2017 tax act lowered the top 

statutory rate from 39.6 percent to 37 percent 

in 2018. The top rate is scheduled to return to 

39.6 percent in 2026, when most of the individual income tax provisions of the act expire. Top 

rates were much higher in the 1960s and 1970s, 

although few people fell in the top brackets. A 

series of legislative changes brought the rate on 

the highest earners down from 91 percent in 

1962 to 28 percent in 1988. Since 1993, the 

top rate has ranged between 35 percent and 

39.6 percent. ♦

Exhibit 6.

Statutory Rates for the Highest Earners of Labor Income Under the Individual Income 

Tax System

Percent

● ●●

●

●

● ●

●

●

Actual Projected

0

25

50

75

100

1962 1968 1974 1980 1986 1992 1998 2004 2010 2016 2022 2028

Revenue Act of 1964 reduced the top individual 

tax rate from 91 percent to 70 percent.

Revenue and Expenditure Control Act 

of 1968 temporarily imposed an 

individual income tax surcharge.

Tax Reform Act of 1969 lowered the maximum tax rate 

on earned income from 70 percent to 50 percent.

Tax Reform Act of 1986 

reduced the top individual 

tax rate to 28 percent.

Omnibus Budget Reconciliation 

Act of 1990 increased the top 

rate to 31 percent.

Omnibus Budget 

Reconciliation Act of 

1993 increased the top 

rate to 39.6 percent.

2017 tax act lowered 

the top tax rate to 

37 percent.

American Taxpayer 

Relief Act of 2012 

returned the top rate 

to 39.6 percent.

Economic Growth and Tax Relief 

Reconciliation Act of 2001 

reduced the top individual tax 

rate to 35 percent.

Source: Congressional Budget Office.
17

January 2019 MARGINAL FEDERAL TAX RATES ON LABOR INCOME: 1962 TO 2028

In 2018, according to a broad measure, labor 

income in the United States totaled $11.7 trillion. Over three-quarters of that income was 

reported on individual income tax returns, and 

that proportion is expected to remain stable 

over the next 10 years. Reported labor income is 

lower than total income mostly because certain 

forms of labor income, such as many employer-provided fringe benefits, are exempt from 

taxation. In addition, some workers are not 

required to file because their income is very low, 

and some labor income is never reported to tax 

authorities.

The share of labor income that was reported on 

tax returns during the 1960s was about 10 percentage points higher than today. That share fell 

throughout subsequent decades, mostly because 

fringe benefits became a larger share of total 

labor income. Income from self-employment has 

been a fairly constant share of labor income over 

the past several decades. For the past decade, the 

ratio of reported labor income to total income 

has been fairly stable. ♦ 

Exhibit 7.

Share of Total Labor Income Subject to Individual Income Taxes 

Percent

Actual Projected

0

20

40

60

80

100

1962 1968 1974 1980 1986 1992 1998 2004 2010 2016 2022 2028

Source: Congressional Budget Office.

Labor income consists primarily of wages and salaries but also includes nonwage compensation such as employers’ contributions to 

employment-based health insurance. For details, see Appendix B.

Projections are consistent with those in CBO’s The Budget and Economic Outlook: 2018 to 2028, published in April 2018.
18

January 2019 MARGINAL FEDERAL TAX RATES ON LABOR INCOME: 1962 TO 2028

In 2018, the federal income tax had seven brackets that applied to different levels of taxable 

income. The bottom bracket applied to taxable 

income between $0 and $9,525, whereas the 

top rate applied to all taxable income above 

$500,000 ($600,000 for married couples filing 

a joint tax return). Over the next eight years, the 

income ranges for the brackets will hold steady 

in real terms, because the brackets are indexed 

to inflation using the chained consumer price 

index for all urban consumers. In 2026, after the 

expiration of most individual income tax provisions in the 2017 tax act, the entry point for 

the top bracket is scheduled to fall to $425,100 

(in 2018 dollars). In contrast, the entry points 

for the next three highest brackets are scheduled 

to rise to $423,400, $194,700, and $93,300 (in 

2018 dollars).

Over time, the number of tax brackets has been 

reduced. In 1962, the tax schedule for a single filer had 24 separate brackets; the highest 

bracket started at incomes comparable to over 

$1.4 million today (not shown in figure). The 

entry points for the higher brackets declined in 

real terms over the next 20 years, as inflation 

reduced the real values of the unindexed brackets. The 1986 tax act substantially reduced the 

number of brackets: After 1987, the number of 

brackets declined to four. The Omnibus Budget 

Reconciliation Act of 1993 then increased the 

number of the brackets to five and boosted the 

entry point for the highest bracket beginning in 

1994. The general structure of the brackets has 

changed only slightly since then. ♦

Exhibit 8.

Individual Income Tax Brackets for a Single Filer

Income, Thousands of 2018 Dollars

0

25

50

75

100

200

400

600

800

1962 1968 1974 1980 1986 1992 1998 2004 2010 2016 2022 2028

Actual Projected

Source: Congressional Budget Office.

Each dash marks a threshold between brackets. Brackets start at $0 for each year (although from 1977 to 1987 the rate for the first 

bracket was zero percent).

Bracket amounts, in 2018 dollars, are adjusted for inflation using the chained consumer price index for all urban consumers. For years 

before 2000 (that is, before the Bureau of Labor Statistics calculated the chained measure), CBO adjusted the consumer price index for 

all urban consumers to approximate the slower growth of the chained measure. 

Not displayed are two brackets in 1962 and 1963 and one bracket in 1964 with thresholds greater than $800,000 in 2018 dollars. 

In 2018 dollars, the omitted 1962 brackets start at $1,074,800 and $1,433,100, the omitted 1963 brackets start at $1,064,200 and 

$1,418,900, and the omitted 1964 bracket starts at $1,403,951.

For 1988 to 1990, a 5 percent surtax applied to a portion of income in the 28 percent bracket. For the sake of classification, CBO 

considered the result to be a separate 33 percent tax bracket.    
19

January 2019 MARGINAL FEDERAL TAX RATES ON LABOR INCOME: 1962 TO 2028

In 2018, the federal income tax had statutory 

rates of 10 percent, 12 percent, 22 percent, 

24 percent, 32 percent, 35 percent, and 37 percent. Those rates are scheduled to remain 

unchanged until after 2025, when most individual income tax provisions in the 2017 tax 

act expire. At that point, the rates are scheduled 

to revert to what existed from 2013 to 2017: 

10 percent, 15 percent, 25 percent, 28 percent, 

33 percent, 35 percent, and 39.6 percent.

Rates on high-income filers have been reduced 

over time. In 1962, the highest rate was 91 

percent, and taxable income over $100,300 

(in 2018 dollars) faced a rate of 50 percent or 

higher. Rates on high income were reduced 

sharply in the 1980s: After the enactment of the 

Tax Reform Act of 1986, the highest earners faced a rate of 28 percent. The Omnibus 

Budget Reconciliation Act of 1993 added a 

31 percent bracket, and the Omnibus Budget 

Reconciliation Act of 1990 introduced rates of 

36 percent and 39.6 percent. The Economic 

Growth and Tax Relief Reconciliation Act of 

2001 reduced rates and introduced a 10 percent 

bracket, and the American Taxpayer Relief Act 

of 2012 reintroduced the 39.6 percent rate in 

2013. ♦

Exhibit 9.

Statutory Individual Income Tax Rates for a Single Filer

Income, Thousands of 2018 Dollars

Actual Projected

ERTA TRA OBRA93 ATRA

2017

Tax Act

0

25

50

75

100

200

400

600

800

1962 1968 1974 1980 1986 1992 1998 2004 2010 2016 2022 2028

0

25

50

75

Tax Rate

(Percent)

Source: Congressional Budget Office.

Bracket amounts, in 2018 dollars, are adjusted for inflation using the chained consumer price index for all urban consumers. For years 

before 2000 (that is, before the Bureau of Labor Statistics calculated the chained measure), CBO adjusted the consumer price index for 

all urban consumers  to approximate the slower growth of the chained measure. 

Not displayed are two brackets in 1962 and 1963 and one bracket in 1964 with thresholds greater than $800,000 in 2018 dollars. 

In 2018 dollars, the omitted 1962 brackets start at $1,074,800 and $1,433,100, the omitted 1963 brackets start at $1,064,200 and 

$1,418,900, and the omitted 1964 bracket starts at $1,403,951.

For 1988 to 1990, a 5 percent surtax applied to a portion of income in the 28 percent bracket. For the sake of classification, CBO 

considered the result to be a separate 33 percent tax bracket. 

The Tax Act of 1969 reduced the maximum rate on earnings to 60 percent in 1971 and 50 percent in years after 1971.

2017 Tax Act = P.L. 115-97, originally titled the Tax Cuts and Jobs Act; ATRA = American Taxpayer Relief Act of 2012; ERTA = Economic 

Recovery Tax Act of 1981; OBRA93 = Omnibus Budget Reconciliation Act of 1993; TRA = Tax Reform Act of 1986.
20

January 2019 MARGINAL FEDERAL TAX RATES ON LABOR INCOME: 1962 TO 2028

A tax filer’s statutory tax rate is the rate that applies 

in his or her highest tax bracket. For 2018, CBO 

projects, roughly one-quarter of returns filed will 

not report any taxable income after credits, and 

nearly half of returns will be in the 10 percent or 

12 percent statutory rate bracket. Only 3 percent 

of returns will fall into the top two brackets. The 

percentage of returns facing a statutory rate at or 

under 15 percent is projected to decrease over the 

next 10 years, as real income growth is expected to 

push some filers into higher tax brackets.

Throughout the 1960s, fewer than 0.5 percent 

of tax filers faced a statutory rate of 50 percent 

or more, and the number of tax filers facing rates 

higher than 28 percent fluctuated between 2 percent and 4 percent. In the 1970s, the share of tax 

filers in high rate brackets began to grow rapidly. By 1981, 1.5 percent of returns fell into tax 

brackets with tax rates of 50 percent and higher, 

and almost one-quarter fell into brackets with 

rates higher than 28 percent. The rapid increase 

occurred despite stability in the tax law because the 

tax system was not indexed for inflation and rapid 

inflation in the 1970s pushed many taxpayers up 

the rate schedule. 

The Economic Recovery Tax Act of 1981 and the 

Tax Reform Act of 1986 greatly reduced the share 

of taxpayers in high statutory rate brackets. By 

1988, fewer than 3 percent of tax filers were in 

brackets higher than 28 percent, and threequarters were in brackets of 15 percent and lower. 

The percentage of returns in the various categories 

remained fairly stable in the following decades, 

with some variation based on changes in the top 

statutory rate. ♦

Exhibit 10.

Percentage of Returns Classified According to Their Statutory Individual Tax Rate

Percent

0

25

50

75

100

1962 1968 1974 1980 1986 1992 1998 2004 2010 2016 2022 2028

Tax Rate (Percent)

Greater

Than 50

39.7−50

36−39.6

29−35

16−28

1−15

Nontaxable

Returns

Actual Projected

Source: Congressional Budget Office, drawing from Daniel Baneman and James R. Nunns, Income Tax Paid at Each Tax Rate, 1958–

2009 (Updated) (Tax Policy Center, October 2011), https://tinyurl.com/y723tzpd, and using individual income tax data collected by the 

Internal Revenue Service’s Statistics of Income Division.

Projections are consistent with those in CBO’s The Budget and Economic Outlook: 2018 to 2028, published in April 2018.

For 1988 to 1990, a 5 percent surtax applied to a portion of income in the 28 percent bracket. For the sake of classification, CBO 

considered the result to be a separate 33 percent tax bracket.   
21

January 2019 MARGINAL FEDERAL TAX RATES ON LABOR INCOME: 1962 TO 2028

The schedule of statutory tax rates is a major determinant of the marginal tax rate, but many other provisions contribute to a taxpayer’s marginal tax rate. 

Those provisions include deductions and tax credits, 

if the amounts are based on the recipient’s earnings. 

The hypothetical family in this example—a married 

couple with two children, who claim the standard 

deduction—has a marginal tax rate of −55 percent 

if it has earnings between $2,500 and $14,290. As 

the couple’s earnings increase, so does the amount 

of earned income tax credit and child tax credit that 

they receive. But as earnings rise above $24,340, the 

earned income tax credit is reduced for each additional dollar earned, increasing the marginal rate 

over the phaseout range by 21.06 percentage points. 

Once the couple’s income exceeds $51,482, they no 

longer receive any earned income tax credit and their 

marginal rate settles at 12 percent. 

If their earnings exceed $100,000, they face increasingly higher statutory rates—increasing from 

12 percent to 22 percent, 24 percent, 32 percent, 

and 35 percent, until peaking at 37 percent once 

taxable earnings exceed $600,000. The only difference between the marginal and statutory rates in 

this example would result from the phaseout of the 

$4,000 in child tax credit, which begins at $400,000 

in earnings. The credit phases out by 5 percent for 

each $1,000 earned until being eliminated entirely 

once earnings exceed $480,000. By CBO’s estimates, 

of all married couples filing jointly in 2018, 39 percent had income of more than $100,000, and 12 percent had income in excess of $200,000. ♦

Exhibit 11.

Marginal Tax Rate for a Hypothetical Married Couple With Two Children and Earnings Up to 

$100,000 Who File Jointly Under the Individual Income Tax System, 2018

Percent

−60

−50

−40

−30

−20

−10

0

10

20

30

40

0 25 50 75 100

Annual Earnings in Thousands of Dollars

Earned Income and 

Child Credit Phase-In

Earned Income Credit Plateau

Earned Income Phaseout and 

10 Percent Statutory Rate

Statutory Rate

Marginal 

Tax Rate

Earned Income Phaseout and 

12 Percent Statutory Rate

12 Percent Statutory Bracket

Marginal Rate on Earnings up to $500,000

Earned 

Income 

Credit 

Phase-In

−60

−40

−20

0

20

40

60

0 100 200 300 400 500

Source: Congressional Budget Office.

The marginal rate here is defined as the change in taxes divided by the change in earnings.

Rates displayed are for a filer taking the standard deduction.
22

The Dispersion of Marginal 

Individual Income Tax Rates

Background

Whereas the economywide measure of the marginal federal tax rate on labor income is useful in 

understanding how fluctuations over time in that 

rate may have affected the economy, it can mask 

more significant changes experienced by particular 

groups of taxpayers. That variation is especially 

true under the individual income tax system, in 

which a graduated rate structure, exemptions, 

deductions, and tax credits all affect marginal tax 

rates. The progressive nature of the individual 

income tax system means that taxpayers with 

higher earnings generally face higher marginal tax 

rates than do taxpayers with lower earnings. But 

taxpayers with comparable earnings can still face 

very different marginal rates, depending on their 

family structure and the presence of other forms of 

income and deductions. 

Key Points

Marginal tax rates under the individual income tax 

system vary widely:

• In 2018, one-fifth of workers had marginal tax 

rates of zero percent and below.

• In 2018, one-fifth faced marginal tax rates 

above 22 percent. 

• On average, higher-income filers face higher 

marginal individual income tax rates than 

lower-income filers.

• The marginal rates faced by filers within 

an income group can vary dramatically, 

particularly among low-income filers.

Marginal tax rates differ significantly by family 

type:

• On average, married filers face higher marginal 

individual income tax rates than do unmarried 

filers; the major reason for the difference is that 

married filers typically have higher income.

• On average, single filers without children 

currently face higher marginal individual 

income tax rates than do those with children, 

but that difference is projected to disappear 

with the expiration of certain provisions of the 

2017 tax act at the end of 2025.
23

January 2019 MARGINAL FEDERAL TAX RATES ON LABOR INCOME: 1962 TO 2028

Under the individual income tax system, higher 

earners generally face higher marginal income 

tax rates than do lower earners because statutory 

tax rates increase with income. In 2018, on average, the top fifth of earners faced a marginal rate 

of 22.9 percent; the middle fifth, 16.1 percent; 

and the lowest fifth, −3.8 percent, according to 

CBO’s estimates. (A negative marginal tax rate 

implies that after-tax income rises as earnings 

rise, which occurs because some tax credits 

increase with earnings.) Because of the 2017 

tax act, all of those rates are lower than the ones 

experienced in 2017.

CBO expects the average marginal rate on 

labor income to rise slowly over the next several 

years for all income groups, largely reflecting 

the effects of income growth’s moving more 

income into higher tax rate brackets. The rate 

is projected to rise for all groups in 2026, after 

major changes that the 2017 tax act made to the 

individual income tax expire, and then continue 

to gradually drift upward.

A combination of legislated changes in the tax 

code and the interaction of the code with rapid 

inflation caused the marginal tax rates on higher 

income groups to rise substantially through the 

1960s and 1970s. Marginal tax rates were fairly 

steady for middle income groups and fell for low 

earners. Since 1987, the marginal rate on earnings has drifted down for most groups. For the 

highest earners, those changes have been largely 

driven by changes to the statutory rate structure. 

For the lowest earners, expansions of refundable 

credits and new low tax brackets have been the 

main cause of the decline. ♦

Exhibit 12.

Marginal Income Tax Rates Under the Individual Income Tax System by Earnings Quintile

Percent

Actual Projected

−10

0

10

20

30

40

1962 1968 1974 1980 1986 1992 1998 2004 2010 2016 2022 2028

Bottom Quintile

Second Quintile

Middle Quintile

Top Quintile

Fourth Quintile

Source: Congressional Budget Office, using individual income tax data collected by the Internal Revenue Service’s Statistics of Income 

Division.

The marginal rate here is defined as the change in taxes divided by the change in earnings that follows from a 1 percent increase in 

earnings for each tax return.

Each quintile contains an equal number of filing units; nonfilers are not included.

Projections are consistent with those in CBO’s The Budget and Economic Outlook: 2018 to 2028, published in April 2018.
24

January 2019 MARGINAL FEDERAL TAX RATES ON LABOR INCOME: 1962 TO 2028

Taxpayers with similar earnings can have very 

different tax liabilities and marginal rates for 

many reasons, including their nonlabor income, 

family structure, and eligibility for deductions 

for tax credits. 

In 2018, marginal income tax rates varied 

among taxpayers with similar earnings across the 

income distribution, with the greatest variation 

among low earners. Within the lowest decile of 

earners, some taxpayers had negative marginal 

rates, in some cases as low as −60 percent. But 

other taxpayers had marginal rates of 25 percent 

or even higher. The variation within deciles 

diminishes for the higher deciles. But even 

within the highest decile, considerable variation 

exists, with some taxpayers facing marginal rates 

below 20 percent and others facing rates in 

excess of 40 percent. ♦

Exhibit 13.

Distribution of Marginal Tax Rates Under the Individual Income Tax System by Earnings 

Decile, 2018

Marginal Tax Rate (Percent)

Earnings Decile

8 million

4

1

−60

−30

0

30

60

1 2 3 4 5 6 7 8 9 10

Source: Congressional Budget Office, using individual income tax data collected by the Internal Revenue Service’s Statistics of Income 

Division. 

The area of a circle represents the number of filers within a given decile that are taxed at the marginal rate (rounded to the nearest 

whole number) indicated by the position of the center of the circle.

The marginal rate here is defined as the change in taxes divided by the change in earnings that follows from a 1 percent increase in 

earnings for each tax return.

Each decile contains an equal number of filing units; nonfilers are not included.
25

January 2019 MARGINAL FEDERAL TAX RATES ON LABOR INCOME: 1962 TO 2028

Tax liabilities and marginal tax rates under the 

individual income tax system vary on the basis 

of the composition of the family. For example, 

marital status determines the taxpayer’s filing 

status and statutory tax rate schedule, and the 

presence of children has traditionally affected 

eligibility for dependent exemptions, the child 

tax credit, and the earned income tax credit. 

(However, the 2017 tax act eliminated dependent exemptions from 2018 through 2025.) In 

addition, other characteristics that affect taxes, 

such as the amount of earnings and the presence 

of itemized deductions, vary among different 

types of families.

In 2018, married couples, with and without 

children, faced marginal tax rates of around 

16 percent on average. Single filers had significantly lower marginal rates, in large part because 

they also typically had lower income. And 

among single filers, those with children faced 

lower marginal rates than did those without. 

In the next several years, marginal rates are 

expected to rise gradually for all family types. 

They are projected to rise rapidly with the expiration of certain provisions of the 2017 tax act 

at the end of 2025 and then resume a gradual 

upward drift. 

Earlier, in the 1960s, marginal rates for different 

types of families were generally similar. In the 

1970s, married couples saw much larger increases 

in marginal rates. Since the early 1980s, rates 

have generally declined for all family types, with 

the largest declines among single parents. ♦

Exhibit 14.

Marginal Tax Rates Under the Individual Income Tax System for Different Types of Families

Percent

Actual Projected

0

10

20

30

1962 1968 1974 1980 1986 1992 1998 2004 2010 2016 2022 2028

Single With 

No Children

Married With No Children

Married 

With Children

Single With Children

Source: Congressional Budget Office, using individual income tax data collected by the Internal Revenue Service’s Statistics of Income 

Division. 

The marginal rate here is defined as the change in taxes divided by the change in earnings that follows from a 1 percent increase in 

earnings for each tax return. 

Projections are consistent with those in CBO’s The Budget and Economic Outlook: 2018 to 2028, published in April 2018.
26

January 2019 MARGINAL FEDERAL TAX RATES ON LABOR INCOME: 1962 TO 2028

As the structure of families has changed over 

time, so has the composition of filings. The 

portion of tax returns from married couples 

filing jointly has declined, while the portion of 

returns from people filing as single or as a head 

of household has increased. (Although those 

three filing types do not constitute all possibilities, they covered an estimated 98 percent of all 

filers in 2018.)

In 1962, 59 percent of all returns were filed 

by married couples filing jointly. By 2018, the 

number had dropped to 35 percent. Single 

filers increased as a portion of total filers from 

32 percent to 48 percent. The percentage of 

single parents with children (head-of-household 

filers) as a portion of the total increased fivefold 

from 1962 to 2018, with most of that increase 

occurring by the mid-1990s. Those trends are 

estimated to continue through CBO’s 10-year 

projection window. ♦

Exhibit 15.

Composition of Filings by Family Structure

Percentage of All Filing Units

Actual Projected

0

20

40

60

1962 1968 1974 1980 1986 1992 1998 2004 2010 2016 2022 2028

Married, Filing Jointly

Single

Head of Household

Source: Congressional Budget Office, using individual income tax data collected by the Internal Revenue Service’s Statistics of Income 

Division. 

Projections are consistent with those in CBO’s The Budget and Economic Outlook: 2018 to 2028, published in April 2018.
27

January 2019 MARGINAL FEDERAL TAX RATES ON LABOR INCOME: 1962 TO 2028

Marginal tax rates under the individual income 

tax system vary widely among taxpayers depending on their earnings, family structure, and other 

characteristics. In 2018, one-fifth of taxpayers had marginal individual income tax rates 

of zero percent and below, whereas one-fifth 

experienced marginal tax rates above 22 percent. 

Over the upcoming decade, as overall marginal 

rates rise, CBO expects some increase in the 

dispersion of marginal rates, especially near the 

middle of the earnings distribution.

Despite the larger range in statutory tax rates, 

in the 1960s and 1970s marginal tax rates were 

more tightly clustered than in recent years. In 

1962, a spread of 4 percentage points separated 

the filer at the 20th percentile from the filer at 

the 80th percentile. That gap grew substantially 

in subsequent decades. 

In the middle of the distribution, the difference 

between the marginal rate of the filer at the 40th 

and 60th percentiles has been very small over 

the past 50 years. In fact, following enactment 

of the Tax Reform Act of 1986, there was no 

difference in rates in that range for much of the 

period from 1987 to 2013. ♦

Exhibit 16.

Range of Marginal Individual Income Tax Rates

Percent

Actual Projected

−20

−10

0

10

20

30

40

50

1962 1968 1974 1980 1986 1992 1998 2004 2010 2016 2022 2028

5th–95th Percentile

20th–80th 40th–60th

50th (Median)

Source: Congressional Budget Office, using individual income tax data collected by the Internal Revenue Service’s Statistics of Income 

Division. 

The marginal rate here is defined as the change in taxes divided by the change in earnings that follows from a 1 percent increase in 

earnings for each tax return.

Percentiles are based on the ordering of marginal rates by filing unit.

Projections are consistent with those in CBO’s The Budget and Economic Outlook: 2018 to 2028, published in April 2018.
28

Combined Individual and Payroll Marginal 

Tax Rates for Hypothetical Families

Background

Economywide measures of marginal tax rates are 

an important metric for evaluating the tax system. 

However, those measures have limitations because 

they combine all factors affecting marginal tax 

rates, making it difficult to disentangle changes in 

tax law and changes in income and demographics over time. To provide another perspective on 

marginal rates, CBO has calculated a series of 

marginal rates for hypothetical households over 

the 1962–2028 period.

Specifically, CBO estimated the marginal tax rate 

for four different families: a single filer with no 

children, a married two-earner couple with no 

children, a married two-earner couple with two 

children, and a single filer with one child. For 

each of those types of families, marginal tax rates 

were estimated at three different income levels: the 

median income, half of the median income, and 

twice the median income for that family type.

In the examples, all income is from wages and 

salaries; in addition, taxpayers itemize deductions 

worth 18 percent of income and claim the greater 

of those deductions or the standard deduction. 

(Roughly half of the itemized deductions are 

assumed to be for state and local taxes, and the 

rest are for charitable contributions and mortgage 

interest.) For purposes of calculating payroll taxes 

for the married couples, the examples split earnings evenly between the two spouses. The following exhibits highlight interesting changes to the 

marginal rates among the types of families but do 

not attempt an exhaustive explanation of all the 

factors contributing to the year-to-year changes. 

Key Points

Marginal rates for families at a particular point in 

the income distribution have varied substantially 

over time.

• Some changes result from legislative changes.

• Some changes result from shifts in the income 

distribution that, for instance, move the 

median income into a new bracket or out of 

the phaseout range for a credit.

Although filers with higher income usually face 

higher marginal rates because of the system’s 

progressive structure, such is not always the case. 

In particular, lower-income families with children 

often face high marginal tax rates when they are in 

the range in which the earned income tax credit 

phases out.

Some of the differences in marginal tax rates 

among filers with the median income for different 

types of families result from the substantial differences in the median income, rather than from 

differences in how the tax code treats different 

family structures. 
29

January 2019 MARGINAL FEDERAL TAX RATES ON LABOR INCOME: 1962 TO 2028

By CBO’s estimates, in 2018, the median single 

filer with no children had an income of about 

$32,200. The marginal rate for that person was 

27.3 percent—15.3 percent from payroll taxes 

and 12 percent from individual income taxes. 

A person earning half the median was in the 

10 percent income tax bracket and therefore 

faced a combined marginal rate of 25.3 percent, 

and a person earning twice the median was in 

the 22 percent income tax bracket and therefore 

faced a combined marginal rate of 37.3 percent.

Marginal rates for each of those groups are 

expected to be stable for the next several years. 

In 2026, the expiration of most individual 

income tax provisions in the 2017 tax act is 

projected to cause statutory rates to rise for the 

median and twice-median earners, pushing up 

their marginal tax rates. The marginal tax rate 

for the half-median earner is unchanged.

Marginal rates for single filers with no children earning the median income and twice 

the median have been fairly steady for the past 

30 years. The changes in marginal rates for those 

groups primarily derived from changes in the 

statutory rate structure. 

Marginal rates for single filers with no children 

earning half the median have been significantly 

more volatile. That volatility occurred because 

income for such single earners is near several 

thresholds that affect marginal tax rates, so 

the marginal rate rises and falls depending on 

whether the taxpayer is in the 10 percent or 

15 percent bracket or in the earned income tax 

credit phase-in or phaseout range. ♦

Exhibit 17.

Marginal Tax Rates for a Hypothetical Single Filer With No Children

Percent

Actual Projected

−20

−10

0

10

20

30

40

50

60

70

1962 1968 1974 1980 1986 1992 1998 2004 2010 2016 2022 2028

Half Median

Median

Twice Median

Source: Congressional Budget Office.

In 2018, the median income for this type of filer was about $32,200, according to CBO’s estimates.

The marginal rate here is defined as the change in taxes divided by the change in wages and salaries that follows from a 1 percent 

increase in wages and salaries.

The filing status is assumed to be head of household.

For details about the values used for median income, see Appendix B. 

CBO’s illustrative example incorporates several assumptions: that a filer’s itemized deductions will equal 18 percent of his or her 

income and that 52 percent of those deductions will be from state and local taxes, 27 percent will be from home mortgage interest, 

and 21 percent will be from charitable contributions. Filers can choose the greater of itemized deductions or the standard deduction.
30

January 2019 MARGINAL FEDERAL TAX RATES ON LABOR INCOME: 1962 TO 2028

In 2018, by CBO’s estimates, the median single filer 

with one child had an income of about $32,000. 

The marginal rate for such a filer was 43.28 percent—15.3 percent from payroll taxes and 12 percent 

from the statutory individual income tax rate and 

15.98 percent from the phaseout of the earned 

income tax credit. A single filer with one child earning twice the median faced a lower marginal rate—

27.3 percent—because he or she was in the same 

income tax bracket but past the phaseout range of 

the earned income tax credit. Such a person earning 

half the median faced a 15.3 percent marginal rate, 

exclusively from payroll taxes; the person owed no 

income tax because his or her income was less than 

the standard deduction and was between the phase-in 

and phaseout ranges of the earned income tax credit. 

For each of those hypothetical taxpayers, marginal 

rates are projected to be flat for the next few years, 

then to rise in future years, partly because of real 

growth in income and partly because of the expiration of most individual income tax provisions in 

the 2017 tax act. For the half-median earner, CBO 

projects that earnings will reach the phaseout range 

of the earned income tax credit in 2025, causing a 

sharp increase in the person’s marginal tax rate. The 

twice-median earner is projected to move into a 

higher tax bracket because of earnings growth, and 

the median earner is affected only by the statutory 

rate increase with the expiration of most individual 

income tax provisions in the 2017 tax act.

Marginal rates for such filers earning the median 

income or twice the median have been fairly steady 

for the past 30 years. The changes in marginal rates 

for those groups were largely due to changes in the 

statutory rate structure. For such filers earning half 

the median, marginal rates have been significantly 

more volatile because their income put them near the 

threshold for the earned income tax credit. ♦

Exhibit 18.

Marginal Tax Rates for a Hypothetical Single Filer With One Child

Percent

Actual Projected

−20

−10

0

10

20

30

40

50

60

70

1962 1968 1974 1980 1986 1992 1998 2004 2010 2016 2022 2028

Half Median

Median

Twice Median

Source: Congressional Budget Office.

In 2018, the median income for this type of filer was about $32,000, according to CBO’s estimates.

The marginal rate here is defined as the change in taxes divided by the change in wages and salaries that follows from a 1 percent 

increase in wages and salaries.

For details about the values used for median income, see Appendix B. 

CBO’s illustrative example incorporates several assumptions: that a filer’s itemized deductions will equal 18 percent of his or her 

income and that 52 percent of those deductions will be from state and local taxes, 27 percent will be from home mortgage interest, 

and 21 percent will be from charitable contributions. Filers can choose the greater of itemized deductions or the standard deduction.
31

January 2019 MARGINAL FEDERAL TAX RATES ON LABOR INCOME: 1962 TO 2028

According to CBO’s estimates, in 2018, the median 

married two-earner couple with no children had an 

income of about $112,300. The marginal rate for 

them was 37.3 percent—15.3 percent from payroll 

taxes and 22 percent from individual income taxes. 

Such filers earning twice the median faced a 39.3 percent marginal rate, owing to a slightly higher individual income tax rate. Such filers earning half the 

median faced a 27.3 percent marginal rate, resulting 

from payroll taxes and from being in the 12 percent 

individual income tax bracket.

For those hypothetical taxpayers, marginal rates are 

projected to be flat for the next few years, then to 

rise in 2026, with the expiration of most individual 

income tax provisions in the 2017 tax act. For the 

median and half-median earners, the rate increase 

reflects the higher statutory rates that are scheduled to prevail after those provisions expire. For the 

twice-median earners, the increase in the marginal 

rate is much larger because that household is projected to be subject to the alternative minimum tax, a 

parallel tax system that applies to some high-income 

filers, in 2026 and beyond. 

Marginal rates for those half-median and twicemedian earners have been fairly steady for the past 

30 years. Since 1987, the rate for the family at twice 

the median has ranged from 39 percent to 49 percent. The range for the family at half the median has 

ranged from 27 percent to 30 percent. But for the 

family earning the median income, marginal rates 

have been significantly more volatile, ranging from 

28 percent to 43 percent. Much of that variation has 

occurred depending on whether median income in 

a particular year placed that filer in the 15 percent 

bracket or a higher bracket. ♦

Exhibit 19.

Marginal Tax Rates for a Hypothetical Married Two-Earner Couple With No Children

Percent

Actual Projected

−20

−10

0

10

20

30

40

50

60

70

1962 1968 1974 1980 1986 1992 1998 2004 2010 2016 2022 2028

Half Median

Median

Twice Median

Source: Congressional Budget Office.

In 2018, the median income for this type of filer was about $112,300, according to CBO’s estimates.

The marginal rate here is defined as the change in taxes divided by the change in wages and salaries that follows from a 1 percent 

increase in wages and salaries.

For details about the values used for median income, see Appendix B. 

CBO’s illustrative example incorporates several assumptions: that a filer’s itemized deductions will equal 18 percent of his or her 

income and that 52 percent of those deductions will be from state and local taxes, 27 percent will be from home mortgage interest, 

and 21 percent will be from charitable contributions. Filers can choose the greater of itemized deductions or the standard deduction.
32

January 2019 MARGINAL FEDERAL TAX RATES ON LABOR INCOME: 1962 TO 2028

In 2018, CBO estimates, the median married 

two-earner couple with two children had an 

income of about $112,300. The marginal rate 

for them was 37.3 percent—15.3 percent from 

payroll taxes and 22 percent from individual 

income taxes. Such filers earning twice the 

median faced a 39.3 percent marginal rate, 

owing to a slightly higher individual income tax 

rate. Such filers earning half the median faced 

a 27.3 percent marginal rate, resulting from 

payroll taxes and from being in the 12 percent 

individual income tax bracket. 

For those hypothetical taxpayers, marginal rates 

are projected to be flat for the next few years, 

then to rise in 2026, with the expiration of most 

individual income tax provisions in the 2017 tax 

act. The rates are identical to the rates faced by 

the married couples with no children (shown in 

the previous exhibit). 

Marginal rates for the twice-median earners with 

two children have been fairly steady for the past 

30 years. Both the filers with the median income 

and the filers with half of the median income 

faced the same 30 percent marginal rate for 

much of the period from 1987 to 2007, though 

both filers occasionally faced much higher rates. 

Also, after legislation increased the range of 

earnings subject to the earned income tax credit 

for married couples filing jointly, the couple 

with two children earning half the median was 

affected by the credit’s phaseout from 2009 to 

2013. ♦

Exhibit 20.

Marginal Tax Rates for a Hypothetical Married Two-Earner Couple With Two Children

Percent

Actual Projected

−20

−10

0

10

20

30

40

50

60

70

1962 1968 1974 1980 1986 1992 1998 2004 2010 2016 2022 2028

Half Median

Median

Twice Median

Source: Congressional Budget Office.

In 2018, the median income for this type of filer was about $112,300, according to CBO’s estimates.

The marginal rate here is defined as the change in taxes divided by the change in wages and salaries that follows from a 1 percent 

increase in wages and salaries.

For details about the values used for median income, see Appendix B. 

CBO’s illustrative example incorporates several assumptions: that a filer’s itemized deductions will equal 18 percent of his or her 

income and that 52 percent of those deductions will be from state and local taxes, 27 percent will be from home mortgage interest, 

and 21 percent will be from charitable contributions. Filers can choose the greater of itemized deductions or the standard deduction.
33

January 2019 MARGINAL FEDERAL TAX RATES ON LABOR INCOME: 1962 TO 2028

One challenge in comparing the changes in marginal 

rates over time faced by single and married filers 

both with and without children is that the median 

incomes for those four groups are quite different. By 

considering a family in each group with the same 

income—the median income for all families—it is 

possible to more clearly observe the effects of the 

tax treatment of different family types and sizes on 

marginal rates.

In 2018, a single filer with no children with earnings 

of about $62,500 (the median for all families) faced 

a marginal tax rate of 40.3 percent—15.3 percent in 

payroll taxes plus the 25 percent income tax bracket. 

Married filers with and without children and a single 

filer with a child with that income faced the same 

payroll tax rate but fell in the 12 percent tax bracket 

(as the tax bracket covered a larger income range for 

those filing categories). 

Over the next decade, the single filer with no children and with median earnings is projected to see 

no change in his or her marginal rate, and married 

filers would see only a small change attributable to 

the statutory rate that is scheduled to occur with the 

expiration of most provisions affecting the individual 

income tax in the 2017 tax act. In contrast, the marginal rate for the single filer with a child is projected 

to rise sharply because the median income (for all 

families) in 2024 is high enough to push that filer 

into a higher bracket.

Before the tax laws of the 1980s, the marginal tax 

rates were similar for the four family types earning 

the median income. After the enactment of the Tax 

Reform Act of 1986, which broadened tax brackets 

for the married and head-of-household filing statuses 

by more than it did for the single filing status, marginal rates diverged. ♦

Exhibit 21.

Marginal Tax Rates for Different Types of Families With Median Earnings

Percent

Actual Projected

−20

−10

0

10

20

30

40

50

60

70

1962 1968 1974 1980 1986 1992 1998 2004 2010 2016 2022 2028

Married, Two Children

Married, No Children

Single, One Child a

Single, No Children

Source: Congressional Budget Office.

The marginal rate here is defined as the change in taxes divided by the change in wages and salaries that follows from a 1 percent 

increase in wages and salaries.

For details about the values used for median income, see Appendix B. 

CBO’s illustrative example incorporates several assumptions: that a filer’s itemized deductions will equal 18 percent of his or her 

income and that 52 percent of those deductions will be from state and local taxes, 27 percent will be from home mortgage interest, 

and 21 percent will be from charitable contributions. Filers can choose the greater of itemized deductions or the standard deduction.

a. The filing status is assumed to be head of household.
34

Appendix A: Changes to the Federal Tax System

To provide a reference, the Congressional Budget 

Office has compiled this list of major changes to 

the federal tax system since 1962. It draws from 

a more extensive treatment by a researcher at the 

Department of the Treasury.1

Individual Income Tax

The Tax Reform Act of 1964 (Public Law 88-272): 

• Lowered the top rate from 91 percent to 

70 percent and lowered other rates as well;

• Increased the number of brackets, creating four 

between $0 and $2,000 of income, rather than 

one; and

• Created a minimum standard deduction of 

$300 plus $100 per person.

The Revenue and Expenditure Control Act of 

1968 (P.L. 90-364) created a temporary 10 percent 

tax surcharge.

The Tax Reform Act of 1969 (P.L. 91-172):

• Extended the previous income tax surcharge, 

1. Jerry Tempalski, Revenue Effects of Major Tax Bills, OTA 

Working Paper 81 (Office of Tax Analysis, Department of 

the Treasury, September 2006), https://go.usa.gov/xEY3E

(PDF, 772 KB).

• Set up a bracket structure for single filers 

different from the one for a married couple 

filing separately,

• Increased the personal exemption from $600 to 

$750,

• Increased the minimum standard deduction 

to $1,000 and increased the percentage-based 

standard deduction, and

• Lowered the maximum rate on earnings to 

50 percent.

The Revenue Act of 1978 (P.L. 95-600):

• Reduced rates,

• Decreased the number of brackets,

• Increased the personal exemption from $750 to 

$1,000, and

• Increased the standard deduction.

The Economic Recovery Tax Act of 1981 

(P.L. 97-34):

• Gradually cut individual tax rates, reducing the 

top rate from 70 percent to 50 percent;

• Indexed brackets to inflation starting in 1985; 

and

• Indexed the standard deduction and personal 

and dependent exemptions to inflation starting 

in 1985.

The Tax Reform Act of 1986 (P.L. 99-514):

• Reduced rates, lowering the top rate to 

28 percent;

• Imposed a surtax of 5 percent for high-income 

filers;

• Created an effective rate of 33 percent within a 

certain income range;

• Reduced the number of brackets;

• Increased the value of personal exemptions; 

and 

• Increased the value of the standard deduction.

The Omnibus Budget Reconciliation Act of 1990 

(P.L. 101-508):

• Raised the top rate to 31 percent,

• Added a new income tax bracket, 
35

January 2019 MARGINAL FEDERAL TAX RATES ON LABOR INCOME: 1962 TO 2028

• Temporarily phased out exemptions for highincome earners, and

• Temporarily limited itemized deductions for 

high-income earners.

The Omnibus Budget Reconciliation Act of 1993 

(P.L. 103-66):

• Increased the top rate to 39.6 percent,

• Increased the number of brackets by adding 

36 percent and 39.6 percent brackets,

• Made the phaseout of personal exemptions for 

high-income earners permanent, and

• Made the limit on itemized deductions for 

high-income earners permanent.

The Tax Relief Act of 1997 (better known as the 

Taxpayer Relief Act of 1997, P.L. 105-34) created 

the child tax credit.

The Economic Growth and Tax Relief 

Reconciliation Act of 2001 (P.L. 107-16):

• Gradually lowered individual rates, including 

dropping the top rate to 35 percent and 

establishing a new bracket at 10 percent 

(whereas the lowest bracket previously was at 

15 percent);

• Gradually repealed the phaseout of personal 

exemptions for high-income earners and 

increased exemptions from the alternative 

minimum tax;

• Increased the standard deduction for married 

couples filing jointly and gradually repealed the 

limit on itemized deductions for high-income 

earners; and 

• Increased the child tax credit and made the 

credit partially refundable on the basis of 

earnings.

The Jobs and Growth Tax Relief Reconciliation 

Act of 2003 (P.L. 108-27):

• Accelerated the rate cuts enacted in 

the Economic Growth and Tax Relief 

Reconciliation Act, 

• Increased exemptions from the alternative 

minimum tax, and 

• Accelerated the increase in the child tax credit 

enacted in the Economic Growth and Tax 

Relief Reconciliation Act. 

The American Taxpayer Relief Act of 2012 

(P.L. 112-240):

• Made most rates and brackets enacted 

in the Economic Growth and Tax Relief 

Reconciliation Act permanent but allowed the 

top rate to rise to the level in place before that 

law, 39.6 percent;

• Increased exemptions to the alternative 

minimum tax, indexed the exemptions and 

alternative minimum tax brackets to inflation, 

and reinstated the phaseout of personal 

exemptions for high-income earners;

• Reinstated the limit on itemized deductions for 

high-income earners; and 

• Made the expanded child tax credit permanent 

and temporarily lowered the threshold for 

refundability.

The 2017 tax act (originally called the Tax Cuts 

and Jobs Act of 2017, P.L. 115-97):

• Lowered all statutory rates (the top one to 

37 percent) except for those at 10 percent and 

35 percent;

• Maintained the same number of brackets but 

changed the thresholds for some brackets and 

indexed tax brackets and other tax parameters 

to inflation using the chained consumer price 

index (instead of the consumer price index), 

resulting in smaller increases in the brackets 

and other thresholds in future years;

• Eliminated personal exemptions;

• Introduced a new 20 percent deduction for 

pass-through income, increased the standard 

deduction, set new limits on itemized 

deductions but repealed the previous limit on 

itemized deductions by high-income earners; 

and

• Further expanded the child tax credit.
36

January 2019 MARGINAL FEDERAL TAX RATES ON LABOR INCOME: 1962 TO 2028

Payroll Tax

The Social Security Amendments of 1961 gradually increased the combined employer-employee 

rate, previously set at 6 percent, to 9.25 percent by 

1968.

The Social Security Amendments of 1965:

• Introduced the Hospital Insurance tax,

• Gradually increased the combined employeremployee rate from 7.25 percent in 1965 to 

11.3 percent by 1987, and 

• Increased the earnings base from $4,800 to 

$6,600, beginning in 1966.

The Social Security Amendments of 1967:

• Accelerated and expanded previous increases in 

the combined employer-employee rate and

• Increased the earnings base from $6,600 to 

$7,800 beginning in 1968.

The Social Security Amendments of 1971:

• Gradually increased the combined employeremployee rate and

• Increased the earnings base to $9,000 

beginning in 1972.

The Social Security Amendments of 1972 

increased the combined employer-employee rate.

The Social Security Amendments of 1973:

• Increased the combined employer-employee 

rate and

• Increased the earnings base to $13,200 in 

1974.

The Social Security Amendments of 1977:

• Gradually increased the combined employeremployee rate to 15.3 percent in 1990 and

• Increased the earnings base on an ad hoc basis 

through 1981 and set the base to automatically 

adjust with average wages after 1981.

The Social Security Amendments of 1983 accelerated scheduled increases of the combined 

employer-employee rate.

The Omnibus Budget Reconciliation Act of 1993 

(P.L. 103-66) removed the maximum taxable earnings base and subjected all earnings to the Hospital 

Insurance tax beginning in 1994.

The Tax Relief, Unemployment Insurance 

Reauthorization, and Job Creation Act of 2010 

(P.L. 111-312) reduced the employee’s portion of 

the payroll tax funding Old-Age, Survivors, and 

Disability Insurance by 2 percentage points in 

2011, for a combined employee-employer rate of 

13.3 percent.

The Temporary Payroll Tax Cut Continuation Act 

of 2011 (P.L. 112-78) extended the 2 percentagepoint reduction in the payroll tax funding OldAge, Survivors, and Disability Insurance through 

2012.
37

Appendix B: Data and Methods

In this report, the Congressional Budget Office 

examines marginal rates using a two-pronged 

approach. First, using a simulation approach on a 

representative sample of workers, CBO estimates 

the economywide marginal tax rate under both the 

payroll and individual income tax systems and the 

distribution of marginal tax rates under the individual income tax system across the population. 

Next, to provide context for its main analysis, the 

report shows how marginal tax rates under both 

the individual income and payroll tax systems for 

several hypothetical families have evolved over 

time.

The Simulation Approach

Here are the methodological details for CBO’s 

estimates of marginal tax rates:

Data 

CBO’s estimates of marginal rates are calculated 

using the Internal Revenue Service’s Statistics of 

Income (SOI) Individual Income tax file, a nationally representative sample of individual income tax 

returns that has increased from roughly 90,000 

returns around 1980 to more than 300,000 

returns in recent years. CBO’s use of SOI files 

starts with those for 1962, because beginning in 

that year, the files contain sufficient information to 

calculate marginal rates for all filers. SOI files are 

not available for 1963, 1965, 1967, or 1969. The 

latest SOI file available at the time this analysis 

was undertaken was for tax year 2015. For the 

projections over the 2016–2028 period, CBO uses 

the same methods as those used for the agency’s 

Budget and Economic Outlook: 2018 to 2028, produced in April of 2018.

Tax-filing units are the primary unit of analysis. 

Married couples filing jointly and unmarried filers 

are each counted as a single unit. For married 

couples filing jointly, the marginal payroll tax 

rate is the average for the two spouses, with value 

for each spouse weighted according to his or her 

earnings. Marginal rates are not estimated for nonfilers. However, the economywide marginal rate 

implicitly adjusts for nonfiling by adjusting the 

overall marginal tax rates for differences between 

labor income identified in the Department 

of Commerce’s national income and product 

accounts (NIPAs) and labor income that appears 

on tax forms. 

Estimating Marginal Tax Rates

Marginal tax rates are calculated by simulating the 

effect on taxes of a 1 percent increase in earnings 

for each tax return. Taxes are first simulated on 

the basis of observed income for each return. 

Then, taxes are simulated after increasing the labor 

income of each return by 1 percent. The marginal 

rate is defined as the change in taxes divided by the 

change in labor income. For 1987 and years after, 

those simulations use CBO’s individual income 

tax model.1 For years prior to 1987, marginal rates 

are simulated using a calculator developed by Jon 

Bakija of Williams College.2

For years after 2000, payroll tax marginal rates are 

calculated using the same simulation approach. 

For years before 2000, the SOI data do not contain the information necessary to divide earnings 

for married couples filing jointly into each spouse’s 

income. CBO estimated the marginal payroll 

tax rate in those years on the basis of aggregate 

information tabulated by the Social Security 

Administration.

This paper focuses solely on the impact of federal marginal tax rates and does not address state 

income taxes. Furthermore, the payroll taxes 

examined include only those used to finance the 

Old-Age, Survivors, and Disability Insurance 

and Hospital Insurance Trust Funds and do not 

include smaller taxes, such as the federal and state 

taxes used to finance unemployment insurance.

1. For information about that model, see Congressional 

Budget Office, “An Overview of CBO’s Microsimulation 

Tax Model” (June 2018), www.cbo.gov/

publication/54096.

2. For more details, see Jon Bakija, Documentation for a 

Comprehensive Historical U.S. Federal and State Income 

Tax Calculator Program (working paper, Williams College, 

August 2009), https://tinyurl.com/bakija (PDF, 485 KB).
38

January 2019 MARGINAL FEDERAL TAX RATES ON LABOR INCOME: 1962 TO 2028

Aggregating Across Taxpayers

CBO uses different approaches to average marginal rates across taxpayers. The economywide 

marginal rate is defined as the share of additional 

income that would be paid in taxes if all workers 

experienced an equal percentage increase in labor 

income. (Alternatively, the economywide marginal 

rate can be thought of as the average marginal 

tax rate across all taxpayers, with each taxpayer 

weighted by his or her earnings.) The measure is 

generally used in analyses of the macroeconomic 

effects of tax changes because changes in the number of hours worked affect total national income 

in proportion to the hourly wages of the affected 

individuals.

In contrast, CBO also examines marginal rates 

averaged across subgroups of taxpayers, such as 

specific family types or deciles of the earnings distribution. In those cases, the agency generally averages across taxpayers giving each taxpayer equal 

weight. That person-weighted measure represents 

the experience of a typical taxpayer.

Family types are defined on the basis of marital 

status and the presence of dependents as reported 

on the tax return. Specifically, married taxpayers, 

whether filing separately or jointly, are considered 

married. All other taxpayers are considered unmarried. The presence of children is based on whether 

the taxpayer claims an exemption for children, 

whether the children live at home or away from 

home. 

Earnings quintiles and deciles are constructed by 

ranking each return by the joint earnings on that 

return. Quintiles have equal numbers of returns, 

as do deciles.

Measuring Labor Income

CBO also uses different measures of labor income 

when examining the distribution of marginal tax 

rates and the economywide rate. The measure used 

in the distributional estimates is a narrow measure, 

including wage income that is reported on a tax 

return and self-employment income. That narrow 

measure does not account for sources of labor 

income that are not subject to taxation.

In contrast, CBO’s estimates of the economywide 

marginal rate on labor are based on the broader 

definition of labor income used in the national 

income and product accounts. That measure is 

generally used in analysis of the macroeconomic 

effects of tax changes because it relates most closely 

to gross domestic product. It considers the portion 

of labor income that is not subject to taxation. 

Although most labor income as measured in the 

national income and product accounts is subject 

to taxation, some forms of labor income, such 

as many employer-provided fringe benefits, are 

exempt from taxation. In addition, some labor 

income is never reported to the tax authorities. 

The share of labor income subject to taxation has 

declined over the past several decades as a greater 

share of compensation comes from sources not 

subject to payroll taxes, especially payments for 

employment-based health insurance premiums. 

From the 1960s to the 1990s, those benefits 

almost doubled as a share of labor income, from 

9 percent to 18 percent, driven by rapid growth 

in the cost of health insurance. The share of labor 

income going to wages has declined by a comparable amount. (See Figure B-1.) 

CBO estimates that the composition of a marginal 

dollar of labor income is identical to the overall 

composition of labor income, with one notable 

exception: Only a small portion of marginal labor 

income takes the form of employment-based 

health insurance, because those benefits are usually 

offered in a fixed amount by employers and a 

worker earning additional income would have 

little flexibility to change them in the near term. 

Here are the details of CBO’s estimates of the 

various components of labor income as recorded 

in the national income and product accounts and 

the corresponding tax rates (see Table B-1):

• Wages and salaries reported on tax forms 

are the largest component of labor income. 

In 2018, wages and salaries accounted for 

68 percent of all labor income. 

• Self-employment income derived from 

labor and reported on tax forms accounted 

for 3.5 percent of total labor income. Selfemployment income includes returns on labor 

and returns on capital. CBO estimates that 61 

percent of self-employment income derived 

from labor. 

• Wages, salaries, and self-employment income 

not reported on tax forms but identified from 

the national income and product accounts 

represented an additional 8.6 percent of 

labor income in 2018 (4.6 percent from 

wages and salaries, and 4.0 percent from selfemployment). That income was not reported 

on tax forms because the filers did not meet the 

threshold required to report income or because 

people avoided or evaded their responsibility 

to pay taxes. The unreported portion made up 

a small share of all wage and salary income, 

but unreported self-employment income was 
39

January 2019 MARGINAL FEDERAL TAX RATES ON LABOR INCOME: 1962 TO 2028

larger than the reported component, indicating 

substantial tax avoidance and evasion.

• Employees’ contributions to defined 

contribution accounts like 401(k) and 403(b) 

accounts and thrift savings plans made up 

2.5 percent of labor income in 2018. Those 

amounts do not show up on tax forms and 

are not subject to federal income tax, but 

withdrawals from those accounts are taxable. 

To simplify the calculations of marginal rates 

on labor income, CBO assumes that the 

effective marginal rate on contributions to such 

accounts is the same as the rate on wages and 

salaries. The amounts are subject to the federal 

payroll taxes that finance Social Security and 

Medicare.

• Employers’ contributions to employment-based 

health insurance are not generally subject to 

federal income and payroll taxes. High-cost 

plans are an exception; starting in 2022, a 

40 percent excise tax will be levied on single 

coverage plans with premiums above $10,200 

per year and family coverage plans with 

premiums above $27,500 per year. CBO and 

the staff of the Joint Committee on Taxation 

estimate that, initially, 1 out of every 10 people 

will be affected, although most will avoid the 

tax through changes in their health insurance 

coverage. Employers’ contributions for 

employment-based health insurance made up 

6.5 percent of total compensation in 2018.

• Employers’ contributions to pension plans 

made up 4.6 percent of total compensation in 

2018. Those contributions are not subject to 

taxation when they are deposited in pension 

funds, but payments made to pensioners out 

of those funds are taxable. To simplify the 

calculation of marginal rates on labor income, 

CBO assumes that the effective marginal rate 

on payments to pension funds is the same as 

the marginal tax rate on wages and salaries.

• Employers’ contributions to payroll taxes are 

typically half of the total liability, with some 

exceptions. The employer’s share of those taxes, 

paid on behalf of the employee, made up the 

final 5.4 percent of total labor income in 2018. 

Figure B-1.

Composition of Labor Income

Percent

0

20

40

60

80

100

1962 1968 1974 1980 1986 1992 1998 2004 2010 2016 2022 2028

Wages and Salaries

Employment-Based Health Insurance

Other Fringe Benefits and Employment Taxes

Portion of Proprietors’ Income Allocated to Labor

Actual Projected

Source: Congressional Budget Office.
40

January 2019 MARGINAL FEDERAL TAX RATES ON LABOR INCOME: 1962 TO 2028

• Group life insurance is another component of 

labor income, although it is relatively small, 

constituting less than 1 percent in 2018.

Hypothetical Examples

CBO also calculated a series of rates for hypothetical families of different types. Here are the methodological details:

Data

For each hypothetical example, median income is 

based on tabulations by the Census Bureau, using 

the following tables presenting historical income:

• Table H-11, Size of Household by Median 

and Mean Income. For the median income of 

a single filer with no children, CBO used the 

Census Bureau’s information presented for 

households with one person.3

• Table F-10, Presence of Children Under 

18 Years Old by Type of Family—Families by 

Median and Mean Income. For the median 

income of a single filer with one child, CBO 

used the information presented for a “female 

householder, no husband present, one or more 

children under 18 years old.”4

• Table F-7, Type of Family (All Races) by 

Median and Mean Income. For the median 

income for both a married couple with no 

children and a married couple with two 

children, CBO used the information for 

3. See https://go.usa.gov/xEWbz.

4. See https://go.usa.gov/xEWbS. 

Table B-1.

Composition and Tax Rate on Components of Labor Income as Reported in the National Income 

and Product Accounts, by Source, 2018

Percent

Share of Marginal Tax Rate

Income Source

Total Labor 

Income

Marginal 

Labor Income Total

Individual 

Income Tax Payroll Tax

Wages and Salaries

Wages Reported on Individual Income Tax Returns 68.0 73.9 32.9 21.9 11.0

Employees’ Contributions to Defined Contribution Accountsa 2.5 2.5 32.9 21.9 11.0

Untaxed Wagesb 4.6 4.6 0 0 0

Self-Employment Income

Self-Employment Income Reported on Individual Income Tax Returns 3.5 3.5 29.8 21.6 8.2

Untaxed Self-Employment Incomec 4.0 4.0 0 0 0

Other Labor Income

Employers’ Contributions to Employment-Based Health Insurance 6.5 0.7 0 0 0

Employers’ Contributions to Social Security 5.4 5.4 0 0 0

Employers’ Contributions to Pension Plansa 4.6 4.6 21.9 21.9 0

Group Life Insurance 0.8 0.8 0 0 0

Total 100.0 100.0 27.1 18.5 8.7

Source: Congressional Budget Office.

The economywide marginal tax rate is the change in taxes divided by the change in labor income that follows from a 1 percent 

increase in labor income for each tax return.

a. Income tax is deferred on employers’ pension contributions and on employees’ contributions to defined contribution accounts, so 

the marginal tax rate on these depends on the tax law and taxpayers’ circumstances when the pension is distributed or the funds 

withdrawn. CBO assigns them the same marginal tax rate as cash wages and salaries.

b. This is the residual between wage and salary income estimated in the national income and product accounts and reported to the 

Internal Revenue Service.

c. This is the residual between the labor portion of proprietors’ income estimated in the national income and product accounts and selfemployment income as reported to the Internal Revenue Service.
41

January 2019 MARGINAL FEDERAL TAX RATES ON LABOR INCOME: 1962 TO 2028

“married couple families, wife in paid labor 

force.”5

• Table H-6, Regions—by Median and Mean 

Income. For the median income of all families, 

CBO used the information presented for the 

United States.6

Census values are used from 1962 to 2016. 

Outcomes for years after 2016 are calculated using 

per capita wage growth as projected in CBO’s 

Budget and Economic Outlook: 2018 to 2028, 

which was published in April of 2018.

Measuring Marginal Tax Rates

For its hypothetical examples, CBO estimates 

marginal tax rates using the same calculators as 

5. See https://go.usa.gov/xEWbS.

6. See https://go.usa.gov/xEWjq. 

it uses in the simulation approach. Taxes are first 

calculated at each multiple of the median income. 

Then labor income is increased by 1 percent, and 

taxes are recalculated. The examples incorporate 

several assumptions: that a filer’s itemized deductions will equal 18 percent of his or her income 

and that 52 percent of those deductions will be 

from state and local taxes, 27 percent from home 

mortgage interest, and 21 percent from charitable 

contributions. Filers can choose the greater of 

itemized deductions or the standard deduction.

Measuring Labor Income

For its hypothetical examples, CBO assumes 

all labor income to be wages. Also, because the 

marginal rates shown in the hypothetical examples include payroll taxes, the employer’s share of 

payroll taxes is added to the denominator.
42

About This Document

This report aims to enhance the Congressional Budget Office’s transparency by describing the marginal tax rates that affect 

people’s incentives to work and that inform the agency’s projections of revenues and economic activity. In keeping with CBO’s 

mandate to provide objective, impartial analysis, the report makes no recommendations.

Kurt Seibert prepared the report with guidance from Edward Harris and John McClelland. Rebecca Spavins (formerly of 

CBO) contributed to the development of the methodology used in this report. David Burk, Janet Holtzblatt (formerly of 

CBO), Junghoon Lee, Bayard Meiser, Kevin Perese, Chayim Rosito, Ellen Steele, Julie Topoleski, Jeff Werling, and Christopher 

Williams provided helpful comments. Jon Bakija of Williams College, Dan Feenberg of the National Bureau of Economic 

Research, Frank Sammartino of the Urban-Brookings Tax Policy Center, Kyle Pomerleau and Steve Entin of the 

Tax Foundation, and Richard Prisinzano of the Penn Wharton Budget Model also provided helpful comments. (The assistance 

of external reviewers implies no responsibility for the final product, which rests solely with CBO.) 

Wendy Edelberg, Jeffrey Kling, and Robert Sunshine reviewed the report, John Skeen edited it, and Casey Labrack prepared it 

for publication. An electronic version is available on CBO’s website (www.cbo.gov/publication/54911). 

CBO continually seeks feedback to make its work as useful as possible. Please send any feedback to communications@cbo.gov.

Keith Hall

Director

January 2019