Sorry if this is a repeat. I didn't see the message come through on the
archive so I'm reposting it.
Roger Odisio wrote,
> A tax system is progressive when tax rates rise with income. A taxpayer
> pays a larger share of income, the more income he/she has.
-snip-
> It follows that when a tax *cut* returns more money, as a share of
> income, to a taxpayer, that too is progressive. The tax rate for lower
> income persons will be reduced more than the rates for those with higher
> income by the tax cut, thus making overall rates more progressive.
Wrong. Here's a simple illustration. The wealthy customer pays 10% of
income for electricity and the poor customer pays 20% of income for
electricity. After a ten percent across the board decrease the wealthy
customer would pay 9% of income and the poor customer 18%. There has been
no change in progressivity because the ratio of 9 to 18 is the same as the
ratio of 10 to 20. The poor customer pays twice as much for electricity,
as a percent of income, both before and after the cut.
The _illusion_ of progressivity appears because the rate cut represents
2% of the poor customer's income but only 1% of the wealthy customers
income. This just means that the poor customers rate had to drop further
AS A PROPORTION OF INCOME just to remain in the same place, relatively.
A point on the edge of a disk travels further with each revolution of the
disk than a point near the center, but the point on the edge doesn't
thereby "gain" on the point in the center.
Tom Walker
