Taxes, Transfers, Progressivity, and Redistribution: Part 3

We present a more thorough analysis of the progressivity and regressivity of tax increases and spending reductions. Our analysis highlights an important distinction between low-end and high-end progressivity. We refer to a policy as having low-end progressivity if it places smaller burdens (relative to income) on the poorest households than on the population as a whole, so that it reduces inequality at the low end of the income distribution by increasing the poorest households’ share of disposable income. We refer to a policy as having high-end progressivity if it places larger burdens (relative to income) on the richest households than on the population as a whole, so that it reduces inequality at the high end of the income distribution by lowering the richest households’ share of disposable income. We present measures of low-end, high-end, and overall progressivity for 11 tax increases and eight spending cuts. Many of the policy options are consistently progressive or consistently regressive throughout the income distribution. However, several policies, including some proposed means tests for social insurance programs and some individual income tax base broadening measures, are progressive at the low end and regressive at the high end. Those policies place smaller burdens (relative to income) on both the poorest and the richest households while placing larger burdens (relative to income) on some or all households between those extremes.