Tax Tales

Tax Tales

“How Fair? Changes in Federal Income Taxation and the Distribution of Income, 1978 to 1998” by James Alm, Fitzroy Lee, and Sally Wallace, in Journal of Policy Journal of Policy Analysis and Management (Winter 2005), Assn. for Public Policy Analysis and Management, P.O. Box 18766, Washington, D.C. 20036–8766.

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The federal income tax has gone under the knife many times in recent decades, in some cases to promote economic growth, in others to make it fairer or more socially beneficial. The income tax that emerged from all the surgical nips and tucks between 1978 and 1998 was still progressive, but less so than it had been, report Alm, an economist at Georgia State University, and his colleagues. And that was before President George W. Bush’s tax cuts in this decade.

The Suits Index measures how regressive or progressive a tax is on a scale from -1 (regressive) to +1 (progressive), with 0 representing a neutral tax. The more progressive a tax, the more redistributive its effect on income. Despite slight increases in 1995 and 1998, the index declined 16 percent over the whole 20-year period, falling from 0.273 to 0.229. It still remained in progressive territory.

Changes in the tax base have tended to make the system more progressive. These include subjecting some Social Security benefits to taxation (1983) and repealing the state and local sales tax deduction (1986). Changes in tax rates have had the opposite effect, producing a kinder and gentler tax system for those who have more.

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