Home > Tax Policy > What Makes Taxation Progressive?

What Makes Taxation Progressive?

That question, and who corporate taxes hurt the most, are interesting topics of this article by Laurence Kotilkoff:

Progessivity depends on average, not marginal taxes. Take TwoGuys, a country comprising Joe Rich and Harry Poor. Joe makes $5 million a year and pays $2 million in taxes. Harry makes $50,000 and pays $5,000 in taxes. Joe’s average tax rate is 40 percent; Harry’s is 10 percent. This outcome is progressive — average tax rates rise with income. But, I forgot to mention, in TwoGuys, people earning more than $3.5 million face no extra tax; that is, the top rate is zero.

Conclusion: you can simultaneously lower the top rate and make the system more progressive.

Categories: Tax Policy
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