TABLE 8-2 Percentage Change in After-Tax Income Under the Committee’s Four Scenarios in Comparison with Current Law for Selected Income Groups, in percent

Group

2012

2050

2080

Current Tax

Simplified Tax

Current Tax

Simplified Tax

Current Tax

Simplified Tax

Low Scenario

First Quintile

NA

0.1

NA

−2.0

NA

−2.6

Third Quintile

NA

0.7

NA

−1.0

NA

−1.7

Fifth Quintile

NA

−0.1

NA

2.1

NA

2.7

Top 5%

NA

0.2

NA

3.1

NA

3.6

Intermediate-1 Scenario

First Quintile

−0.5

−0.6

−2.2

−4.8

−1.8

−5.4

Third Quintile

−1.8

−1.8

−3.5

−6.2

−3.9

−6.7

Fifth Quintile

−3.7

−2.1

−3.5

−0.1

−3.1

0.5

Top 5%

−4.2

−0.6

−3.0

2.0

−2.5

2.5

Intermediate-2 Scenario

First Quintile

−0.5

−0.3

−2.3

−4.9

−2.3

−5.9

Third Quintile

−1.3

−0.6

−4.6

−6.7

−6.7

−9.3

Fifth Quintile

−2.3

−1.3

−6.2

−2.9

−7.8

−3.8

Top 5%

−2.5

−0.3

−6.0

−1.2

−7.3

−2.0

High Scenario

First Quintile

−0.6

−0.8

−4.8

−6.2

−7.0

−9.2

Third Quintile

−2.2

−2.8

−9.8

−11.0

−14.4

−18.1

Fifth Quintile

−4.9

−2.6

−15.0

−7.5

−18.0

−13.5

Top 5%

−5.7

−0.8

−16.2

−6.0

−17.6

−11.7

NOTE: NA = not applicable.

Second, the needed revenue paths of the four scenarios also affect the distribution of taxation. The level and path of payroll taxation vary with the scenario, as do other details that also affect the distribution of payroll tax payments.33 And the VAT added in the high scenario under the current tax structure also has distributional effects—it is less progressive than either form of personal income taxation. In practice, there is no doubt that tax rates and other parameters of the tax system that affect tax distributions would be adjusted multiple times over the decades covered in these simulations and projections.

The third source of change in the tax distribution over time has to do with how the various personal income tax rates are adjusted in the implementations of the two tax structures. For simplicity, we have assumed that the various rates within each personal income tax bracket are adjusted proportionately to each other. Notably, capital gains rates and those on ordinary income are not only raised and lowered together, but are raised or lowered by the same proportion. All of these assumed changes potentially



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