NCPA - National Center for Policy Analysis

Tax Distribution Tables don't Account for Income Mobility

February 25, 2004

Tax "distribution tables" allegedly show how each income group will benefit from a potential reduction in taxes. However, such tables are often incomplete, unreliable and intentionally deceptive, concludes a study from Congress' Joint Economic Committeesays. 

The problem with distribution tables is that they are only a snapshot in time and thus do not show how an individual's tax burden will change over his lifetime.

According to new data released by the Council of Economic Advisers, over a 10-year period there is a significant amount of income mobility -- the extent to which individuals move between income groups over the course of their lives. Between 1987 and 1996, for instance:

  • Some (66 percent) of taxpayers exited the bottom tax bracket, with 9.3 percent moving up 3 or more tax brackets.
  • Meanwhile, 50.9 percent of taxpayers fell out of the top bracket, with 23.1 percent moving down 3 or more tax brackets.
  • Overall, 53 percent of taxpayers found themselves in a different tax bracket over the 10-year period.

Income mobility is rarely taken into account in assessing tax proposals. This means that it is misleading when distributional analyses find that higher income groups will receive a larger portion of tax cut benefits over a 10 year period, because the majority of people in one income tax bracket at the beginning of the period will be in a different bracket by the decade's end.

Source: Jim Saxton, "A Comparison of Tax Distribution Tables: How Missing or Incomplete Information Distorts Perspectives," Joint Economic Committee, December 2003.


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