More on Income Levels and Tax Rates

• The average tax rate on the bottom income quintile is nearly twice the effective rate on the very wealthy: 11.4 percent.

This is, of course, the reverse of the C.B.O.’s findings for federal tax rates, which are progressive. State and local taxes tend to be more regressive if they rely more heavily on sales and excise taxes, do not have a broad-based personal income tax, or have a personal income tax that is structured in a less progressive way (e.g., a flat-rate income tax).

On a related note, Lane Kenworthy, a sociology and political scienceprofessor at the University of Arizona, recently re-examined 2004 data on tax distributions from the Tax Foundation, a research group that promotes lower tax rates.

Remember how I mentioned that the best way to calculate effective tax rates is in dispute? Well Professor Kenworthy found that whether effective tax rates are progressive depends on how you measure income levels.

If you measure the taxes-to-income ratio by including only market income — i.e., “income from employment, investments, and a few other sources, butnot including government transfers” — then the tax system looks flat.

But if you include government transfers in the income total, then the systemdoes indeed become very progressive. He concludes, “Redistribution isachieved mainly by government transfers rather than by taxes.”