Martin Sullivan's analysis of the progressivity of the income tax appears in the Dec. 14 edition of Tax Notes (at 1135). Looking at 1007 data, he finds that the effective rate levels off between one and two million AGI at 24.1%. Above that amount of AGI, the rate declines, down to 19.7% for incomes in excess of $10 million. Effective rates increase graduatally for incomes below $100,000, but AGIs between $100,000 and $500,000 rise steeply to about 19.5%--just under the effective rate for the wealthiest multimillionaires.
What's the cause of the decline in the rate for the wealthiest taxpayers. Sullivan concludes that it is the preferential rate that applies to capital gains and dividends. Households with average AGI incomes between $50,000 and $75,000 receive only 2.3% of their income in a form that gets the preferential rate, whereas about 70% of the income is in that form for those with AGIs over $10 million.
Here's Sullivan's conclusion:
My casual impression is that some people favor progressive rates and about an equal number favor flat rates. Very few openly endorse regressive rates. Nevertheless, that is what we have in the United States. The data in this article clearly show that high-end regressivity is largely the result of a preferential rate on capital gains. The most straightforward way to restore progressivity to the U.S. income tax is to increase the capital gains tax rate.
Recent Comments