Suits index
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Summary
The Suits index[1] of a tax is a measure of collective progressivity. Similar to the Gini Coefficient, the Suits index is calculated by comparing the area under the Lorenz curve to the area under a proportional line. (Someone create a drawing?) For a progressive tax (where higher income tax units pay a greater fraction of their income as tax), the Suits index is positive. A proportional tax (where each unit pays an equal fraction of income) has a Suits index of zero, and a regressive tax (where lower income tax units pay a greater fraction of income in tax) has a negative Suits index.[2] A theoretical tax where the richest person pays all the tax has a Suits index of 1, and a tax where the poorest person pays everything has a Suits index of -1. Tax preferences (credits and deductions) also have a Suits index.
Types of Tax
By definition, a flat income tax has a Suits index of zero. However, almost all income tax schemes allow for some amount of income to be earned without tax (an exemption amount) to avoid collecting tax from very low income units. Also, most income tax schemes provide for higher marginal tax rates at higher income. These effects combine to make income taxes generally progressive, and therefore have a positive Suits index
Sales taxes are generally charged on each purchase, with no low income exemption. Additionally, lower income tax units generally spend a greater proportion of income on taxable purchases, while higher income units will save or invest a larger part of income. Therefore, sales taxes are generally regressive, and have a negative Suits index.
Excise taxes are typically charged on items like gasoline, alcohol or tobacco products. Since the tax rate is typically high, and there is a practical limit to the amount of product that can be consumed, this tax is generally more regressive and has a very negative Suits index.
Examples of Suits indices
Regressive Taxes
Gasoline Tax -0.25[3]
Sales Tax -0.18[3]
Motor Vehicle Sales Tax -0.14[3]
Cigarette and Tobacco Excise Taxes -0.486[4]
Progressive Taxes
State Income Tax (Minnesota) 0.21 [4]
- ^ Measurement of Tax Progressivity Daniel B. Suits The American Economic Review, Vol. 67, No. 4 (Sep., 1977), pp. 747-752
- ^ http://ntj.tax.org/wwtax/ntjrec.nsf/175d710dffc186a385256a31007cb40f/b9cabee3cd8394fe85256d8d006ff8f4/$FILE/A06.pdf
- ^ a b c http://www.cppp.org/files/7/POP%20284%20taxincidence.pdf
- ^ a b http://www.mncn.org/bp/incid07.htm