THE REDISTRIBUTIVE EFFECT OF THE FEDERAL INCOME TAX

Using the Gini coefficient as the measure of income concentration, this paper demonstrates it is possible to identify income redistributive effects of specific Federal Income Tax components. The exemption structure equalizes the after tax size distribution of income. As exemption levels increase, their income equalizing effect increases. Deductions serve to decrease the equality of the after tax size distribution of income. The standard deduction is income equalizing but the itemized deductions, with one exception, are not. Exemptions have a greater redistributive effect than deductions. As expected, the tax rate structure acts to equalize the after tax size distribution of income.