State Income Tax Progressivity

Abstract

This article compares the degree of personal income tax progressivity in selected states and investigates the determinants of changes in progressivity through time. D. Suits's and N. C. Kakwani's recently proposed summary measures of tax progressivity are estimated and compared for twelve states with comparable income tax systems. Time series estimates are made for a single state, North Carolina. The analysis reveals that there are systematic differences in progressivity among the states and that inflation and real income growth are important determinants of declining state income tax progressivity.It is well established that income tax systems differ considerably among the states. Such differences suggest there may also be important variations in the degree of income tax progressivity among the states. Systematic differences in the degree of progression, however, have not been established. Recently, Daniel Suits ( 1 ~'T1b) and N. C. Kakwani (1977) developed summary measures that are well suited for comparing degrees of tax progressivity and for analyzing changes in progression through time.2 In this article, we use Suits's and a~C~vani's summary ~ measures to-compare state income tak progressivity and to investigate the determinants of progression AUTHORS' NOTE: The authors acknowledge the valuable comments and assistance of Terry G. Seaks, W. James Smith, and Margarita Moncada. We have benefited from the comments of two anonymous referees. We also express appreciation to those numerous individuals in state tax research and statistics offices who aided the study by supplying zssential data. Special thanks are offered to Alan Desin,

Taxation and the worlds of welfare

“…Formby and Sykes, 1984). Second, state and local taxes make up a much smaller share of the American revenue structure than consumption taxes make up of the European revenue structure (Carey and Rabesona, 2002).…”

Progressivity of the Commonwealth Personal Income Tax, 1917–1997

“…As discussed earlier, interpretation of global measures may need to be supplemented by local measures and comparison of Lorenz curves (Baum 1998;Formby and Sykes 1984).…”

“…In times of rising incomes, M-T may move differently from S and K depending on whether yield effects or the 'compressing' effects of income inflation on the distribution of tax liabilities dominate the rise in tax liabilities. 8 Empirical studies for North America have shown that the three tax progressivity indices will also not necessarily move in the same direction as the distribution of income varies (Formby, Seaks and James-Smith 1981;Formby and Sykes 1984). For example, the M-T index may move in the same direction as the K index if tax yield is constant, but not necessarily the same as the S index.…”

“…The M-T, S and K global tax progressivity indices have been used to investigate changes in progressivity over time, and to make comparisons across countries and at the subnational government level (Formby and Sykes 1984;Scott and Triest 1996). 10 The M-T, S and K indices have been applied to Australian personal income tax data for varying periods since the early 1950s.…”

“…6. These two indices, and their graphical representation, are compared in Formby, Seaks and James- Smith (1981) and Formby and Sykes (1984).…”