Tax Code Is Most Progressive in Decades

January 7, 2014

Despite claims that rising incomes of the top 1 percent are the result of tax cuts for the wealthy, the tax code is actually at its most progressive level in the last 35 years, says Scott A. Hodge, president of the Tax Foundation.

The largest growth in progressivity has been in the income tax, which is almost twice as progressive today as it was at the end of the Carter administration.

  • Tax progressivity declined after the 1981 tax cuts, when the top marginal rate was lowered to 50 percent from 70 percent.
  • But when the Tax Reform Act of 1986 was passed (which lowered the top marginal tax rate from 50 percent to 28 percent), it increased the value of the standard deduction, personal exemption and the Earned Income Tax Credit.
  • Since this time, legislators have been increasing the top marginal rates while expanding tax credits (such as the child credit, or the Earned Income Tax Credit).

Tax credits temporarily provide relief to low-income families. However, using higher tax rates to redistribute income ultimately hurts, rather than helps, the poor because it undercuts the factors that increase standards of living and economic growth.

Source: Scott A. Hodge, "Despite Rising Inequality, Tax Code is at Most Progressive in Decades," Tax Foundation, January 3, 2014.

 

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