David Splinter
Data: davidsplinter.com
Comments: [email protected]
May 14, 2020
National Tax Association Spring Symposium
This presentation embodies work undertaken for the staff of the Joint Committee on Taxation, but as members of both parties and both houses of Congress comprise the Joint Committee on Taxation, this work should not be construed to represent the position of any member of the Committee.
U.S. Tax Progressivity and Redistribution
2Splinter: U.S. Tax Progressivity
Outline
1) Current U.S. federal tax system is progressive
2) Tax progressivity increased since 1979
3) Progressivity vs. Redistribution measures
4) Redistribution increased since 1979
3Splinter: U.S. Tax Progressivity
Previous Research
Average tax rates• Expanded income: TPC, JCT, OTA, CBO (Kasten, Sammartino & Toder 1994)
• Fiscal income: Piketty & Saez (2007)
• National income: Auten & Splinter (2019), Saez & Zucman (2019)
• State: Metcalf (1994), ITEP, Feenberg et al. (2017), Sammartino & Francis (2016)
“Progressivity” measures• Lorenz curve-based: Kakwani (1977), Suits (1977), Stroup (2005)
• Long-run estimates: Mathews (2014), Feenberg et al. (2017), Splinter (2019)
• TCJA: Sammartino, Stallworth & Weiner (2018), Callen & Mathur (2019)
• Net of tax ε: Musgrave & Thin (1948), Feldstein (1969), Feenberg et al. (2017)
Recent Models: Bénabou (2002), Blundell, Pistaferri & Saporta-Eksten (2016)
Heathcote, Storsletten & Violante (2017), DeBacker, Evans, & Phillips (2019)Moore & Pecoraro (2020) review and critique use of smooth functions
• Progressivity vs. Redistribution: Kiefer (1984), Slavov & Viard (2016)
Tax/Transfer Redistribution Measures• Reynolds & Smolensky (1977), Lambert (1985), Meyer et al. (2020)
4Splinter: U.S. Tax Progressivity
1) Current federal tax system is progressive
5Splinter: U.S. Tax Progressivity
Average Tax Rates in 2014Federal taxes (including payroll taxes)
Notes: JCT for 2015. Piketty-Saez for 2004 and based on narrow fiscal income, Auten-Splinter on broad national income, and others on intermediate income definitions.
0
10
20
30
40
0 20 40 60 80 100
Avera
ge f
ede
ral ta
x r
ate
(%
)
Income quintile
Auten-Splinter
Piketty-Saez
CBO
Bottom 2nd 3rd 4th Top
Within top 1%
TPC
JCT
6Splinter: U.S. Tax Progressivity
2) Tax progressivity increased since 1979(CBO data for rest of presentation)
7Splinter: U.S. Tax Progressivity
Tax progressivity increased since 1979Quintile-level average federal tax rates
0
10
20
30
1979 1989 1999 2009 2019
Middle Quintile–5.2
Bottom Quintile
–7.6
–0.6Top Quintile
Source: Author’s calculations from CBO estimates. Notes: Income excludes means-tested transfers.
8Splinter: U.S. Tax Progressivity
Tax progressivity measuresKakwani index
Source: Author’s calculations from CBO estimates. Notes: Income excludes means-tested transfers.
0%
25%
50%
75%
100%
0% 25% 50% 75% 100%
Cum
ula
tive
sh
are
of
inco
me o
r ta
xes
Cumulative share of individuals
Cumulativeshare of
federal taxesKakwani
Gini coefficient
Cumulativeshare of income
9Splinter: U.S. Tax Progressivity
50
100
150
200
250
300
1979 1989 1999 2009 2019
Kakwani Index
+49%
Tax progressivity increased, 1979=100
Source: Author’s calculations from CBO estimates. Notes: Income excludes means-tested transfers. Includes 2008 recovery rebate credits, 2009-10 making work pay credits, and 2011-12 payroll tax holiday.
10Splinter: U.S. Tax Progressivity
Tax progressivity measuresTax elasticity (weighted by #individuals)
Source: Author’s calculations from CBO estimates. Notes: Income excludes means-tested transfers.
7
9
11
13
9.5 11.0 12.5 14.0
Lo
g fed
era
l ta
xes (
$20
16
)
Log income ($2016)
1979 ε = slope - 1 = 0.47
11Splinter: U.S. Tax Progressivity
Source: Author’s calculations from CBO estimates. Notes: Income excludes means-tested transfers. Includes 2008 recovery rebate credits, 2009-10 making work pay credits, and 2011-12 payroll tax holiday.
50
100
150
200
250
300
1979 1989 1999 2009 2019
Kakwani Index
+49%
+110%
Tax Elasticity
Making Work Pay credit
Tax progressivity increased, 1979=100
12Splinter: U.S. Tax Progressivity
Tax progressivity increased, 1979=100
50
100
150
200
250
300
1979 1989 1999 2009 2019
Kakwani Index
+49%
+110%
+70%
Tax Elasticity
Source: Author’s calculations from CBO estimates. Notes: Income excludes means-tested transfers. Includes 2008 recovery rebate credits, 2009-10 making work pay credits, and 2011-12 payroll tax holiday.
13Splinter: U.S. Tax Progressivity
Top rates are not progressivityNot enough taxpayers are subject to top income rates
Source: SOI individual reports for various years.
0%
30%
60%
90%
1960 1970 1980 1990 2000 2010 2020
%Tax units at top rate
0.6%20161970
0.01%
Top tax rate
19620.001%
14Splinter: U.S. Tax Progressivity
Source: SOI individual reports for various years.
0%
30%
60%
90%
1960 1970 1980 1990 2000 2010 2020
Top tax rateTop 1% avg. indiv. income tax rates
Auten-Splinter
CBO
Top rates are not progressivityTop 1% avg. income tax rates flat since 1960s
15Splinter: U.S. Tax Progressivity
Source: SOI individual reports for various years.
0%
3%
6%
9%
0%
30%
60%
90%
1960 1970 1980 1990 2000 2010 2020
Taxable C corp. retained earnings(%national income, right axis)
Top tax rate
Top rates are not progressivitymore sheltering in C corps with higher rates
Tax base was “full of leaks, loopholes, exemptions and
preferences” –Hellerstein (1963)
16Splinter: U.S. Tax Progressivity
3) Progressivity vs. Redistribution measures
17Splinter: U.S. Tax Progressivity
Progressivity vs. Redistribution%Δ Taxes measures progressivity
• independent of proportional tax changes• not sensitive to amount of total taxation
Source: Author’s example: initial A income of $10K and tax $1K, B of $100K and $30K.
7
8
9
10
9 10 11
Log t
ax
Log pre-tax income
Percent Change in Taxes (tax ε)
slope=1.48 unchanged
initial slope=1.48
double tax rates
18Splinter: U.S. Tax Progressivity
Progressivity vs. Redistribution%Δ After-tax income measures redistribution
• not independent of proportional tax changes• sensitive to amount of total taxation
Source: Author’s example: initial A income of $10K and tax $1K, B of $100K and $30K.
9.0
9.5
10.0
10.5
9 10 11
Log a
fter-
tax incom
e
Log pre-tax income
Percent Change in After-Tax Income
slope=0.7 decreases
initial slope=0.9
double tax rates
7
8
9
10
9 10 11
Log t
ax
Log pre-tax income
Percent Change in Taxes (tax ε)
slope=1.48 unchanged
initial slope=1.48
double tax rates
19Splinter: U.S. Tax Progressivity
Effective tax rate Tax progressivity (%Δ) Tax redistribution (%Δ)
Baseline
(2014) New rate
Kakwani
index
Tax
elasticity
Net of tax
elasticity
21.2 19.1 0.0 0.0 –12
Proportional decrease in avg. tax rates of 10 percent
Proportional increase in avg. tax rates of 10 percent
21.2 23.3 0.0 0.0 +12
Progressivity vs. RedistributionProportional changes to 2014 taxes
• Progressivity is NOT affected• Redistribution is affected
Source: Author’s calculations from CBO estimates. Notes: Income excludes means-tested transfers.
20Splinter: U.S. Tax Progressivity
4) Redistribution increased since 1979
21Splinter: U.S. Tax Progressivity
Average Tax RatesTax rate = taxes/income
0
10
20
30
40
0 20 40 60 80 100
Avera
ge f
edera
l ta
x r
ate
(%
)
Income quintile
Bottom 2nd 3rd 4th Top
22Splinter: U.S. Tax Progressivity
Source: Author’s calculations from CBO estimates. Notes: Income is market income.
-350
-175
0
0 20 40 60 80 100
Ave
rage
fed
eral
tax
rat
e (%
)
Income quintile
Federal Taxes
Bottom 2nd 3rd 4th Top
Average Tax RatesTax rate = taxes/income
23Splinter: U.S. Tax Progressivity
Tax/transfer redistribution in 2016Redistribution rate = (taxes – transfers)/income
Source: Author’s calculations from CBO estimates. Notes: Income is market income.
-350
-175
0
0 20 40 60 80 100
Ave
rage
tra
nsf
er r
ate
(%)
Income quintile
Federal Taxes
Bottom 2nd 3rd 4th Top
Taxes less means-tested transfers
Taxes less means-tested transfers & social insurance benefits
24Splinter: U.S. Tax Progressivity
Tax/transfer redistribution measuresReynolds-Smolensky index
Source: Author’s calculations from CBO estimates. Notes: Individuals ranked by market income.
0%
25%
50%
75%
100%
0% 25% 50% 75% 100%
Cumulative share of individuals
Cumulative share of after-tax/transfer income
Cumulative share of market income
Reynolds-Smolensky index
25Splinter: U.S. Tax Progressivity
Tax/transf. redistribution increased since 1979
Source: Author’s calculations from CBO estimates. Notes: 1979 level set to 100.
75
100
125
150
1979 1989 1999 2009 2019
Reynolds-Smolensky Index
+61%
26Splinter: U.S. Tax Progressivity
Tax/transf. redistribution increased since 1979
Source: Author’s calculations from CBO estimates. Notes: 1979 level set to 100.
75
100
125
150
1979 1989 1999 2009 2019
Reynolds-Smolensky Index
+61%
Mitigating factors:
Total taxes as share of income fell
Transfers increasingly to middle incomes
27Splinter: U.S. Tax Progressivity
Conclusions
Current U.S. tax system is progressive
Redistribution is not progressivityΔAfter-tax income measure ΔRedistribution
Progressivity/Redistribution increased since 1979
Tax progressivity by Kakwani increased 49%
Redistribution by Reyn-Smol. increased 61%
Comments: [email protected]: davidsplinter.com
28Splinter: U.S. Tax Progressivity
Appendix Slides
29Splinter: U.S. Tax Progressivity
Tax progressivity increased since 1979Quintile-level federal tax rate comparisons
Source: Author’s calculations from CBO estimates. Notes: Income excludes means-tested transfers.
-15
0
15
30
1979 1989 1999 2009
Excise
Corporate
Payroll taxes
Income taxes
Top Quintile
Total
1979 1989 1999 2009
ExciseCorporate
Payroll taxes
Income taxes
Bottom Quintile
Total
30Splinter: U.S. Tax Progressivity
Redistribution increased since 1979Quintile-level transfer rates by source
Source: Author’s calculations from CBO estimates. Notes: Income is market income.
0
100
200
300
1979 1989 1999 2009
Social Security &Disability
Medicare
Medicaid–1
+28
Other transfers
+21
+49
Bottom Quintile
+96Total
0
25
50
1979 1989 1999 2009
Social Security & Disability
Medicare
Medicaid
+2
+10
Other transfers
+11
+9
Second QuintileTotal +32
31Splinter: U.S. Tax Progressivity
Tax/transf. redistribution increased since 1979Average redistribution rates (pp changes)
Source: Author’s calculations from CBO estimates. Notes: Income is market income.
-350
-175
0
1979 1989 1999 2009 2019
Middle Quintile–17
Bottom Quintile
–163
–1Top Quintile
32Splinter: U.S. Tax Progressivity
Saez-Zucman (2019) reconciliation to CBO + state/local approach
33Splinter: U.S. Tax Progressivity
Average Tax Rates in 2010Federal (CBO) + State/Local taxes (ITEP)
Notes: ITEP is the Institute on Taxation and Economic Policy.
0
10
20
30
40
0 20 40 60 80 100
Avera
ge t
ax r
ate
s (
%)
Income quintile
CBO + State/Local (ITEP)
CBO (federal only)
Bottom 2nd 3rd 4th Top
Top 1%
34Splinter: U.S. Tax Progressivity
Average Tax Rates in 2010Saez-Zucman rates matched to CBO+State/Local
0
10
20
30
40
0 20 40 60 80 100
Income quintile
CBO+SL
Saez-Zucman
Bottom 2nd 3rd 4th Top
Top 1%
35Splinter: U.S. Tax Progressivity
0
10
20
30
40
0 20 40 60 80 100
Income quintile
CBO+SL
Saez-Zucman
Bottom 2nd 3rd 4th Top
Top 1%
Average Tax Rates in 2010Saez-Zucman rates matched to CBO+State/Local
Add missing OASDI taxes &
social insurance to income
36Splinter: U.S. Tax Progressivity
Average Tax Rates in 2010Saez-Zucman rates matched to CBO+State/Local
Remove imputed retirement &
underreported income
0
10
20
30
40
0 20 40 60 80 100
Income quintile
CBO+SL
Bottom 2nd 3rd 4th Top
Top 1%
37Splinter: U.S. Tax Progressivity
Average Tax Rates in 2010Saez-Zucman rates matched to CBO+State/Local
Account for refundable
credits
0
10
20
30
40
0 20 40 60 80 100
Income quintile
CBO+SL
Bottom 2nd 3rd 4th Top
Top 1%
38Splinter: U.S. Tax Progressivity
0
10
20
30
40
0 20 40 60 80 100
Income quintile
CBO+SL
Bottom 2nd 3rd 4th Top
Top 1%
Average Tax Rates in 2010Saez-Zucman rates matched to CBO+State/Local
Add back 11% of adults dropped by SZ from bottom of
income distribution, remove other
imputed income, equivalence scale, weight by #indivs.