How to Summarize and Interpret Income Tax Schedules

This note describes how most features of an income tax system (and to some extent social security and welfare) can be described as a combination of lumpsums and marginal tax rates and plotted in a summary chart. While this is by no means a new method, applying it consistently can help tremendously in understanding the impact of tax reforms on tax systems, including by identifying any unintentional humps or notches in tax schedules. This note uses this approach to discuss, for example, universal basic incomes, the issue of whether tax allowances should be phased out, and the difference between tax credits and allowances. It also points to the limitations of the approach, such as conditions that cannot be summarized in such tax schedules.

Subject: Average effective tax rate, Income, Income tax systems, Labor, Marginal effective tax rate, National accounts, Non-wage benefits, Social security contributions, Tax allowances, Tax policy, Taxes

Keywords: Average effective tax rate, Average Tax Rate, Income, Income Tax, Income tax systems, Marginal effective tax rate, Marginal Tax Rate, Non-wage benefits, Social security contributions, Tax allowances