![]() Since the erosion of the tax base was more pronounced for upper-income taxpayers prior to the 1986 tax act, the tax system was much less progressive than the old tax rates implied, and possibly not progressive at all. The statutory tax rates misrepresent true progressivity for three reasons.įirst, the tax base-the income that is taxed-is generally much less than total income due to a bewildering array of adjustments, deductions, omissions, and mismeasurements. Other developed countries have emulated the United States in reducing their top rates, although usually by less.ĭoes the precipitous fall in the top tax rate represent a sea change in how the tax burden is distributed? No. Although the highest rate has since been nudged back up to around 34 percent, it is still less than half what it was in 1980. ![]() The Economic Recovery Tax Act of 1981 reduced that rate to 50 percent, and the Tax Reform Act of 1986 further reduced it to 33 percent. In 1980 the highest tax rate stood at 70 percent. Judged by the top income tax rates alone, tax progressivity in the United States declined markedly in the eighties. One tax structure is more progressive than another if its average tax rate rises more rapidly with income. If, for example, taxes for a family with an income of $20,000 are 20 percent of income and taxes for a family with an income of $200,000 are 30 percent of income, then the tax structure over that range of incomes is progressive. ![]() A progressive tax structure is one in which an individual or family’s tax liability as a fraction of income rises with income. If, as Oliver Wendell Holmes once said, taxes are the price we pay for civilized society, then the progressivity of taxes largely determines how that price varies among individuals.
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