NCPA - Daily Policy Digest - The Penalty of The Progressive Income Tax

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The Penalty of The Progressive Income Tax

A study by the Institute for Policy Innovation reports that the Progressive Income Tax (PIT) does not redistribute income. In fact, it has an overall negative effect on income. While the top 10 percent of reported incomes accounts for an increasingly large percentage of total revenue, the incomes of the other 90 percent have declined.

From 1973-1997, the top 10 percent's share of revenue rose from 48 percent to 63 percent, yet the other 90 percent's income declined by 14 percent.

Critics might claim that this is because the rich are getting richer, but the top 10 percent's income grew at a rate less than inflation -- 2.10 percent between 1971-1997, slightly down from its previous growth rate of 2.15 percent.

During a time when the top 10 percent's share of tax revenue was constant (1957-1973), the other 90 percent's income rose sharply.

By contrast, during the period when the top 10 percent's share increased (1973-1997), the other 90 percent's income growth was sharply reduced.

Even when welfare benefits and other transfer payments are taken into account, the other 90 percent still saw a relative drop in income.

In short, the real income effects of high marginal taxation have resulted in lower real after-tax income for all Americans.

Source: David A. Hartman, Institute for Policy Innovation, "Does Progressive Taxation Redistribute Income?" February 12, 2002

For text
http://www.ipi.org/ipi/IPIPublications.nsf/
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