Marginal vs. Average Tax Rates
By David Henderson
From Anthony R. Palmer, M.D.’s letter in the April 26 Wall Street Journal:
I got out my calculator and found that the President and Mrs. Obama paid 26.6% and Vice President and Mrs. Biden paid 22.8% of their adjusted gross income, respectively, in taxes. My tax rate was 28%, but my adjusted gross income was 1/12 of the Obamas’ income and slightly more than one-third of the Bidens’ income.
Notice that Dr. Palmer computes Obamas’ and Bidens’ tax rates to the first decimal point but gives his own rate as 28%, which just happens to be the marginal tax rate that a fairly successful doctor with a non-earning wife and a few kids would be paying. [In 2010, the rate for a married couple filing jointly was 28% for taxable incomes up to $171,850.] Is it possible that Dr. Palmer is comparing his marginal rate with the Obamas’ and Bidens’ average tax rate? I think so. The right comparison is average vs. average or marginal vs. marginal. If he had done that, he would have found that his 28% marginal rate compares with the Obamas’ and Bidens’ marginal tax rates of 35% and that their 26.6% and 22.8% average tax rates compare with Dr. Palmer’s approximately 20% average tax rate.
HT to Charley Hooper.