The 115 th Congress states that tax reform is a priority. In recent years, the focus of individual income tax reform has been on reducing the number of statutory tax brackets as part of a base broadening, rate reducin g tax reform. On June 24, 2016, Republicans released a tax reform blueprint, "A Better Way for Tax Reform." This blueprint proposes to consolidate the seven individual income tax brackets under current law into three, and to eliminate the alternative minimum tax (AMT). Tax reform legislation introduced in the 113 th Congress, the Tax Reform Act of 2014 ( H.R. 1 ), also proposed to reduce the number of individual income tax brackets, and repeal the AMT. Tax reform debates often highlight statutory rates. As is illustrated in this report, however, under the current tax system, statutory rates provide limited information on tax burden. Statutory rates also provide limited information on the economic incentives created by the tax code. When evaluating the equity and economic efficiency (behavioral) effects of tax reform proposals, it is important to look beyond the statutory rate. This report highlights two other tax rate measures: average tax rates and effective marginal tax rates. A taxpayer's average tax rate is the share of total income that is paid in taxes. A taxpayer's effective marginal tax rate is the portion of an additional dollar in earnings that is paid in individual income tax. The analysis in this report relies on the 2010 Internal Revenue Service (IRS) Statistics of Income (SOI) individual public use file. The individual public use file is a microdata file designed to provide a representative sample of individual income tax filers in a given year. The 2010 file contains 159,791 records designed to provide statistical information for the 142.9 million individual income tax returns filed. The report uses the National Bureau of Economic Research's TAXSIM model to compute tax liability, for the purposes of calculating average tax rates, and effective marginal tax rates. The focus of this report is on the federal individual income tax. Thus, the tax rates reported here do not include payroll taxes, corporate income taxes, excise taxes, or estate taxes at the federal level. Nor do the tax rates in this report include any state tax liability. The report also does not include any analysis of the effect of transfer payments on effective marginal tax rates. Not all individuals or households file income tax returns. For example, in 2016, an estimated 83% of "tax units" are expected to file individual income tax returns. The other 17% of tax units are not expected to file returns and have no federal individual income tax liability. Overall, roughly 44% of tax units are expected to have zero or negative income tax liability in 2016. But, many taxpayers that have zero or negative income tax liability have positive payroll tax liability. When both income and payroll taxes are considered, an estimated 18% of tax units are expected to have no income or payroll tax liability in 2016. Since this report relies on data from the IRS SOI public use file, only individuals and households (or tax units) that filed individual income tax returns are included in the analysis. This report provides an overview of the three types of tax rates commonly considered in tax reform debates: statutory, average, and effective marginal tax rates. The first part of the report defines these concepts, and discusses them in the context of the current federal individual income tax system. The report also includes an analysis of how these tax rates vary across the income distribution. The report also looks at variation in average and effective marginal tax rates across taxpayers with similar levels of income. The report concludes with a discussion of potential implications of the analysis for tax reform. Many tax policy debates focus on the statutory tax rates, or the tax rates applied to taxable income. However, in practice, statutory rates do not necessarily reflect a taxpayer's tax burden. Other measures of tax rates that provide more information on tax burdens include average tax rates and effective marginal tax rates. Average tax rates provide a good measure for comparing the burden of taxes across different taxpayers, while both average and effective marginal tax rates provide information on potential economic distortions caused by taxation. The following sections define and describe three common tax rate metrics—statutory, average, and effective marginal rates. Statistics are provided to show how these rates vary for taxpayers at different income levels. A case study is also included to illustrate how statutory, average, and effective marginal tax rates differ for a hypothetical taxpayer. Statutory rates are the tax rates applied to taxable income that falls within a given range or tax bracket. The federal income tax system is designed to be progressive, meaning that higher tax rates are applied at higher income levels. By design, only income that falls within each tax bracket is taxed at that tax rate. For example, if a single filer has taxable income of $10,000 in 2016, that taxpayer would fall in the 15% statutory tax bracket (see Table 1 ). However, only $725 would be taxed at a rate of 15%. For all single filers, income up to $9,275 is taxed at 10%, regardless of the taxpayer's total taxable income. Most tax returns filed fall into one of the lower tax brackets. Figure 1 classifies returns according to the highest statutory tax rate applied to each return. In 2014, the most recent year for which these data are available, 43% of tax returns filed were either non-taxed or in the 10% tax bracket. These returns contained 9% of all adjusted gross income (AGI) reported on 2014 tax returns. Less than 1% of returns filed in 2014 were in the top tax bracket (39.6% in 2014). These returns, however, accounted for 16% of all AGI. Another way to look at the distribution of income across statutory tax rates is to look at the amount of taxable income taxed at a particular rate. In 2014, 29% of taxable income at the marginal rate was taxed at the 39.6% rate. However, less than half of the AGI reported on tax returns falling in the 39.6% bracket was taxed at that rate. The remaining income was taxed at lower rates, per the progressive tax structure. Much of the analysis below examines tax returns filed for 2010. In 2010, the top statutory tax rate was 35% (the 2010 statutory tax rates and brackets are shown in Table A-3 ). The top rate increased to 39.6% following the enactment of the American Taxpayer Relief Act (ATRA; P.L. 112-240 ). As noted above, very few returns filed fell into the top statutory rate bracket (less than 1% in 2014). However, because the top statutory rate is higher now than it was in 2010, the very highest income taxpayers may face higher average and effective marginal tax rates than in 2010. This is important to keep in mind when considering the results of the analysis presented below. A taxpayer's average tax rate is the percentage of total income that is paid in taxes. For the purposes of this report, the average tax rate is calculated as income tax liability divided by cash income. Since the analysis only looks at individual income taxes, payroll taxes, for example, are excluded. The progressive nature of the tax system, coupled with a variety of tax preference items (credits, deductions, exclusions, exemptions, etc. ), makes it so that for nearly all taxpayers, average tax rates are less than statutory tax rates. Further, many taxpayers, particularly lower-income taxpayers, have negative average tax rates. Refundable tax credits, such as the earned income tax credit (EITC), can lead to negative average tax rates. Taxpayers that have average individual income tax rates that are negative often have positive payroll tax liability. In 2010, average tax rates were negative for taxpayers in the bottom four income deciles (or the bottom 40% of taxpayers, in terms of income) (see Figure 2 ). The average of average tax rates (or mean average tax rate) for taxpayers in the second income decile is less than the mean average tax rate for taxpayers in the lowest 10% of the income distribution, reflecting the phase-in of certain refundable credits (e.g., the EITC). As illustrated in Figure 2 , average tax rates tend to rise with income. For taxpayers in the top income decile, or those with incomes above $123,230 in 2010, the mean average tax rate was 13.6%. Average tax rates continue to rise towards the very top of the income distribution. For taxpayers in the top 1% in 2010, or those with incomes above $421,340, the mean average tax rate was 19.8% (see Table B-1 in Appendix A ). While the top statutory rate in 2010 was 35%, average tax rates, even for the highest-income taxpayers, were less. For the income tax system as a whole, average tax rates have fluctuated over time (see Figure 3 and the related discussion). Between 1960 and 2016, the average tax rate for the U.S. income tax system generally fluctuated between 10% and 16%. Over this time period, the individual income tax system-wide average tax rate was highest in the period immediately preceding the 1986 tax reform, and before the tax cuts of the early 2000s. System-wide average individual income tax rates in the 2000s tended to be lower than the historical average. Beginning in 2009, the system-wide average tax rate began increasing. As of 2016, the system-wide average tax rate approached levels seen before the 1986 tax reform and tax cuts of the early 2000s. Effective marginal tax rates are the amount paid in tax on the next dollar of income. A taxpayer's effective marginal tax rate can affect work and savings decisions. Higher effective marginal tax rates make non-taxable forms of compensation, such as non-taxable fringe benefits, more attractive. When taxes distort taxpayer choices, society's economic resources may not be put to their most productive use.