Federal Income Tax Policy

The fairness of the income tax is an active source of debate among academics, policy makers, and the general public. This chapter discusses the issues and surveys the literature pertaining to the distributional effects of the United States personal income tax. It examines the trade-offs between fairness and other goals of taxation and how the willingness to make such trade-offs has varied. The chapter discusses the results of studies that address the positive issue of how the burden of the personal income tax is distributed among households. According to the well-accepted Haig-Simons criterion, the federal income tax base should include anything that increases the individual’s potential to consume goods and services. The progressivity of the entire federal tax system is reduced by regressive excise and payroll taxes and a less progressive corporate income tax. The fairness of the income tax will always be a topic of active debate within both policy and academic circles.