How fair? Changes in federal income taxation and the distribution of income, 1978 to 1998

In this paper, we determine how tax law and income distribution changes have separately contributed to the changes in tax progressivity over time, and also how a specific pre-tax distribution of income affects the equalizing ability of a given tax change. We use information from the Current Population Survey for years that follow immediately after significant tax law changes or after the full enactment of these changes to measure the effect of income taxes on income distribution for selected years over the period 1978 to 1998. We find that, even when account is taken of the induced effect of changes in federal income tax laws on pre-tax income, the individual income tax structure has been less successful in equalizing after-tax income since the 1980s and into the early 1990s. We also find that a given tax law's equalizing effect on the distribution of income is significantly affected by the pretax distribution of income. (C) 2005 by the Association for Public Policy Analysis and Management.