Distributional analysis of prospective 2009 US individual income taxes: current law and the candidates’ tax plans

Abstract

The purpose of this paper is to compare the distributional characteristics of two presidential candidates’ proposed reforms to the US federal individual income tax. Using an anonymous sample of tax return data from the Brookings-Urban Institute Tax Policy Center and the Center’s simulations of 2009 tax law and the two proposals, we compare the vertical and horizontal equity of the three individual income tax regimes. Surprisingly, there is very little difference among the three proposed individual income tax regimes in terms of vertical and horizontal equity. However, when the initial effective tax rate positions and economic incomes of each pair of taxpayers are compared to the new effective tax rate positions under the two proposals, we find that the Obama proposal makes the tax system more progressive than 2009 law. This change is much more pronounced than under the McCain proposal. On the other hand, when these initial positions are compared to the two proposals viz. a viz. horizontal equity, the McCain proposed tax system is more horizontally equitable than 2009 tax law, and more horizontally equitable than the Obama proposal is when compared to 2009 tax law.Tax equity; McCain tax plan; Obama tax plan