Unexpectedly Intriguing!
August 27, 2007

Some things just demand a picture to illustrate. The Tax Foundation's recent computation of the change in progressivity of U.S. income taxes from 2000 to 2005 is one of them:

How the Progressivity of U.S. Income Taxes Changed from 2000 to 2005

The data presented in the chart above includes the contributions of the refundable portions of the Earned Income Tax Credit and the Additional Child Tax Credit. These factors, along with lower tax rates, are a large reason why the tax share decreased substantially for those making less than $25,000 in 2005, as the average tax share for those at these adjusted gross incomes moved to where they receive substantially more in tax credits than they pay in income taxes.

We'll observe that our estimate of the poverty threshold for a married couple with two children in 2005 is $19,723, less than the crossover to positive taxation levels of just over $25,000 for that year.

The chart visually confirms Gerald Prante's observation "that the amount of progressivity within the federal individual income tax system increased from 2000 to 2005, even though income inequality increased slightly."

On that count, slightly is correct. The Gini coefficient, perhaps the best measure of income inequality within a nation, rose by 0.007 for the United States between 2000 and 2005, from 0.462 to 0.469. By contrast, in the decade of the 1990s, it rose from a level of 0.428 in 1990 to 0.462 in 2000, marking a significant increase in income inequality within the U.S. for those years.

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