I have been trying to calculate federal and state tax rates for each individual in the ASEC survey by dividing federal taxes in dollars by income from wages (or alternatively, taxable income) to try and calculate this, but it yields large rates and missing values when there is no income (dividing by zero). Is there a way to obtain these rates in another way? If not, I believe margtax is the best alternative.
I am unaware of an alternate method for calculating federal/state tax rates of CPS respondents. Keep in mind that the tax-related variables included in the ASEC are not collected by directly questioning respondents; instead, the Census Bureau uses its tax model to simulate individual tax returns. As well, respondents under the age of 15 are not included in the tax variable universe and are assigned a string of 9’s for all tax variables. Finally, tax rate levels will be sensitive to your choice of income tax liability before credits versus after credits. Using tax income liability after credits (FEDTAXAC or STATAXAC) will result in noticeably lower tax rates on average.
Hope this helps.
As an addendum to what @Tim_Moreland wrote above, you can use the NBER’s TAXSIM program to calculate tax refunds and liabilities for households. More information here: TAXSIM Related Files at the NBER