Comment on "Average Marginal Tax Rates Revisited"

with Justin G. Marion

Abstract

We show how Barro and Sahasakul (1986) and Stephenson’s (1998) different methods for calculating time series of average marginal personal federal labor income tax rates are based on very different models of tax evasion and avoidance. One model assumes that taxable and untaxable income are (imperfectly) substitutable at the margin for all taxpayers, while the other assumes that substitution is not possible for any taxpayer, and that the average and marginal propensities to earn taxable income are the same. We then update, for the years 1984-94, the Barro and Sahasakul series based on the Barro and Sahasakul model of tax evasion and avoidance, and show how different it is from Stephenson’s series for the same years. For example, Stephenson finds that from 1988-1994 the average marginal income tax rate fell from 17.2% to 16.5% while Barro and Sahasakul’s method implies that the combined average marginal income tax rate actually rose from 23.3% to 24.3%.