Friday, December 10, 2010

Regressive or Progressive?

As is typical in discussions of public policy; perspective is dictated by what set of assumptions you choose to make. In the case of the proposed "tax" deal under discussion that rule also applies. The Tax Policy Center offered analysis of the distribution of tax benefits that found your conclusion on whether they changes made the tax code more progressive depended which time period you chose as the baseline.

Based on the tax code in place today (December 2010) the findings are that the proposed Obama-McConnell deal is progressive. The biggest reduction of tax rate accumulates to the lowest quintile of income, then to the second lowest and so on. Unfortunately the distribution of income being what it is; the small progressivity of the changes still mean that the largest dollar changes go to the highest income Americans.

Based on the tax code that will come into effect on January 1, 2011 (a potential result from no action by the Congress) the deal is regressive. The largest percentage decline in tax rates goes to those in the bracket of the top 1/10 of 1 %. The smallest decline is the lowest quintile at 3.5%.

Food for thought. Which is the better baseline? What exists today or what may exist tomorrow. Either way it shows how regressive the so called "Bush tax cuts" are as they allow this deal to look progressive.

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