David R. Henderson  

Mike Stroup on Tax Progressivity

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Mike Stroup, who used to be my colleague at the Naval Postgraduate School and who is now at Stephen F. Austin State University in Nacogdoches, Texas, has done a pithy 2-pager for the National Center for Policy Analysis. It's titled, "Tax Code Became More Progressive After the Bush Tax Cuts."

Of course, the word "progressive" sounds good: it was very clever of those who wanted higher tax rates on people with higher incomes to label the results "progressive." When I teach about taxes, I used the term "graduated" rather than "progressive." It's not entirely neutral, either, but it's more neutral.

In his piece, Stroup uses various methods to judge progressivity and finds that under all methods, the income tax has become more progressive over the years. Check out his Tax Progressivity Index in Figure 2.

Interestingly, most of this was agreed to by Republican presidents starting with Ronald Reagan.

One critical note: Stroup, like almost everyone who writes about these issues, conflates income and wealth. He refers to poor people and rich people, but has no data on wealth: all his data are on income.

HT to John Goodman.


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CATEGORIES: Taxation



COMMENTS (4 to date)
GU writes:

If you define "progressive taxation" as "average tax rates rising as income rises" then "graduated" can be misleading. See the optimal income tax literature (e.g. Mirrlees (1971)) which suggests progressive taxation but accomplishes it with declining marginal tax rates as income rises (the progressivity is established via demogrants, negative income tax style).

Of course OIT stuff is not on the table for real tax policy, so "graduated rates" probably won't confuse, but it is technically incorrect.

David R. Henderson writes:

@GU,
Good point. Do you have a better more-neutral term?

ezra abrams writes:

to my understanding, most of the "raw" data comes from CBO reports, as posted on Mankiw's blog.
If you look at cbo, what you find is tht the reason the tax code is "prgressive" is imputed corporate taxes, which fall on owners, who of course are in the large the wealthy.
Question: doesn't this conflict with the idea (posted by Mankiw in a pdf by koltikoff) that corp taxes are just passed onto consumers ?

steven k writes:

How about "superlinear"?

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