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Uneven treatment of family life? Horizontal equity in the U.S. tax and transfer system

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  • Bönke, Timm
  • Eichfelder, Sebastian
  • Utz, Stephen

Abstract

We analyze the distributive justice of the combined burden of income taxes, social security taxes and public transfers on employee households in the United States on the federal level and in six member states. To investigate whether the treatment of families by the aggregate tax and transfer system can be regarded as fair, we compare the equivalent incomes of eight different household types. Using the concepts of horizontal equity and system-inherent equivalence scales, we find evidence for a privileged treatment of families with children and a low market income due to the earned income tax credit (EIC), the child tax credit and the supplemental nutrition assistance program (SNAP). If employment taxes are interpreted as taxes in the proper sense, we obtain a favorable treatment of family households and especially married couples for middle-sized market incomes. For high market incomes, we observe a decreasing privilege for all family types. Regarding state tax and transfer systems, temporary aid for needy families (TANF) substantially increases the observed privilege for low-income families compared to singles, while the analyzed state income taxes are generally in line with the federal tax scheme. Overall, our results imply a significant contradiction in value judgments within the U.S. tax and transfer system. --

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Bibliographic Info

Paper provided by Free University Berlin, School of Business & Economics in its series Discussion Papers with number 2012/18.

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Date of creation: 2012
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Handle: RePEc:zbw:fubsbe:201218

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Keywords: horizontal equity; family taxation; distributive justice; tax and transfer system; equivalent income; equivalent income taxation;

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  1. Ebert, Udo & Moyes, Patrick, 2000. "Consistent Income Tax Structures When Households Are Heterogeneous," Journal of Economic Theory, Elsevier, Elsevier, vol. 90(1), pages 116-150, January.
  2. Koulovatianos, Christos & Schröder, Carsten & Schmidt, Ulrich, 2006. "Non-market household time and the cost of children," Discussion Papers 2006/22, Free University Berlin, School of Business & Economics.
  3. Robert Moffitt & John Karl Scholz, 2010. "Trends in the Level and Distribution of Income Support," NBER Chapters, in: Tax Policy and the Economy, Volume 24, pages 111-152 National Bureau of Economic Research, Inc.
  4. Atkinson, Anthony B., 1970. "On the measurement of inequality," Journal of Economic Theory, Elsevier, Elsevier, vol. 2(3), pages 244-263, September.
  5. Olivier Bargain & Mathias Dolls & Dirk Neumann & Sebastian Siegloch & Andreas Peichl, 2011. "Tax-Benefit Systems in Europe and the US: Between Equity and Efficiency," Working Papers, Geary Institute, University College Dublin 201101, Geary Institute, University College Dublin.
  6. Gravelle, Jane & Gravelle, Jennifer, 2006. "Horizontal Equity and Family Tax Treatment: The Orphan Child of Tax Policy," National Tax Journal, National Tax Association, vol. 59(3), pages 631-49, September.
  7. Musgrave, Richard A., 1990. "Horizontal Equity, Once More," National Tax Journal, National Tax Association, vol. 43(2), pages 113-22, June.
  8. Cornia, Gary C. & Slade, Barrett A., 2006. "Horizontal Inequity in the Property Taxation of Apartment, Industrial, Office, and Retail Properties," National Tax Journal, National Tax Association, vol. 59(1), pages 33-55, March.
  9. Jane H. Leuthold & Ralph D. Husby, 1989. "Horizontal Equity and Taxpayer Characteristics: Who Is Advantaged and Disadvantaged by the Federal Income Tax?," Eastern Economic Journal, Eastern Economic Association, vol. 15(1), pages 35-44, Jan-Mar.
  10. Seneca, Joseph J & Taussig, Michael K, 1971. "Family Equivalence Scales and Personal Income Tax Exemptions for Children," The Review of Economics and Statistics, MIT Press, vol. 53(3), pages 253-62, August.
  11. Donaldson, David & Pendakur, Krishna, 2004. "Equivalent-expenditure functions and expenditure-dependent equivalence scales," Journal of Public Economics, Elsevier, Elsevier, vol. 88(1-2), pages 175-208, January.
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