What is an effective income tax rate?

The actual rate at which a taxpayer pays taxes on income accounting for all taxes and offsets. The rate is calculated by dividing the total of all taxes paid, less offsets, by the total taxable income. The effective rate is typically lower than the tax bracket, which is currently based on a progressive rate scale.

How to use it

1. Install Octave
2. In Octave command line, download the function into a .m file

urlwrite("https://raw.githubusercontent.com/jfoclpf/plotEffectiveTaxRate/master/plotEffectiveTaxRate.m", "plotEffectiveTaxRate.m" )

3. Now run, for example

plotEffectiveTaxRate([0, 7091, 20261, 40552, 80640], [14.5, 28.5, 37, 45, 48])

Function syntax

plotEffectiveTaxRate(tax_brackets_array, tax_rates_array [, colour_code])

• The first item of tax_brackets_array must always be zero.
• The tax_rates_array values must be inserted already as percentages, i.e., for a 20% tax, use 20 inseatd of .2  
• The arrays must have the same size.

Colour codes

The colour codes are the same applied for the Octave function plot, namely

• ‘k’ blacK
• ‘r’ Red
• ‘g’ Green
• ‘b’ Blue
• ‘y’ Yellow
• ‘m’ Magenta
• ‘c’ Cyan
• ‘w’ White

Example

The Portuguese progressive income tax for the year 2017 is according to the table:

Value (€)	Tax (%)
less than 7091	14.5
between 7091 and 20261	28.5
between 20261 and 40552	37
between 40552 and 80640	45
more than 80640	48

Thus, you need to run

plotEffectiveTaxRate([0, 7091, 20261, 40552, 80640], [14.5, 28.5, 37, 45, 48])

which outputs

Another example for the Portuguese progressive income tax for the year 2018

plotEffectiveTaxRate([0, 7091, 10700, 20261, 25000, 36856, 80640], [14.5, 23, 28.5, 35, 37, 45, 48], "r")

which outputs

Multiple charts

For multiple charts use the Octave commands hold on and hold off. For example

plotEffectiveTaxRate([0, 7091, 20261, 40552, 80640], [14.5, 28.5, 37, 45, 48], "b")
hold on
plotEffectiveTaxRate([0, 7091, 10700, 20261, 25000, 36856, 80640], [14.5, 23, 28.5, 35, 37, 45, 48], "r")
hold off

which outpurts