Progressive?
One of my long time pet peeves has been the use of the oxymoron "progressive" to describe the graduated income tax rate structure that charges much higher percentages for those people who earn more than others. In this country, it is considered progressive to stick the upper income folks with an overly high share of the total tax burden. I'm not the only one who considers this a penalty on success and achievement.

People don't like my mentioning the connection between the concept of progressive taxes and the Communist Manifesto, but check out item two in Marx's platform and tell me why such a comparison isn't relevant. Perhaps our rulers didn't use the actual manifesto as their blueprint, but sick minds think alike.

On the flip side, it is considered to be "regressive" when lower income people pay a higher percentage of their income for certain taxes, most often sales taxes, than do the evil rich.

What is completely missing from the dialog on taxes is the concept of fairness or uniformity, such as each citizen paying the same dollar amount of taxes to support the government, or even the same percentage of their income.

Measuring the degree of progressivity can be done in a couple of ways. One way would be to just compare the lowest tax rate with the highest. For example, on a nominal level, the 2003 rates range from 10% to 35%, for a progressivity index of 3.5 to 1. For 2002, the rates ranged from 10% to 38.6%, giving a progressivity index of 3.86 to 1. Due to the phase-outs of tax deductions and credits at upper income levels, the actual effective tax rates can be much higher than the top scheduled rate.

The more commonly use measure of progressivity looks at the actual dollars paid by the various income levels. As in this 2000 chart, the top one percent of taxpayers paid 37.42% of all income taxes, for a progressivity index of 37.42 to 1.

I was recently asked if the newly passed tax rate cuts will increase or decrease the overall progressivity of the income tax system. As shown above, the progressivity of the nominal rates has dropped from 3.86 to 3.5. However, while we won't know for sure until after the fact, I am confident in predicting that the shift of actual income tax dollars to the higher earners will be even more lopsided. As can be seen in the debates over the increased child tax credits, more people will be paying zero income tax. By definition, this will put more of the overall tax load on the remaining taxpayers, who are in the higher income ranges.
- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 7/23/2003 08:57:00 PM Send this post: