Corrective Progressivity

Abstract:     

In these times of widening inequality, regressive taxation is about the last thing needed in the United States. Yet that is exactly what we observe in every single state: overall state tax regimes (various combinations of income, property, and sales taxes) impose their highest rates on the poor and lower and lower rates as income increases. This article describes Corrective Progressivity (CP), a federal income tax mechanism to undo all of this variegated regressive state taxation in one fell swoop. Under CP, federal income tax rates vary from state to state — in each state the federal income tax varies inversely with that state’s overall state tax rates so that the total (state federal) tax burden achieves a target level of progressivity. CP would make tax burdens in the states with the most regressive tax systems much more equitable, raising average tax rates by as much as 20% on top incomes and lowering them (into the negative/subsidy range) by a similar amount at the bottom of the income distribution. Although having federal income tax rates vary from state to state sounds like the epitome of a violation of the Constitution’s Uniformity Clause, CP passes muster both as matter of the doctrine of that clause and its underlying policy purpose.

Keywords: tax, state, federal, income, sales, property, progressive, uniformity, clause, inequality

JEL Classification: H22, H23, H24, H70, H73, H77, K34