Family Taxation: An Unfair and Inefficient System
This paper presents an analysis of the 2005-06 family tax system comprising the personal income tax, the Medicare Levy, Family Tax Benefits Parts A and B and tax offsets. The results show that most families are now taxed, in effect, on the basis of joint income. Through a succession of reforms the Howard Government has shifted the tax burden to two-earner families to such an extent that many now pay close to the same amount of tax as a family in which only one parent need work to earn the same income while the other works full time at home. This is a defining feature of joint taxation. The study also finds that families face a marginal rate schedule that is no longer progressive but tends to have an inverted U-shaped profile – working families in the middle of the distribution face the highest marginal rates. As a consequence, the incomes of second earners in low and average wage families are taxed effectively at the highest average rates in the economy. The study explains why the system is unfair and seriously damaging for the economy in its effects on female labour supply in an ageing population. On the basis of the results, the paper argues for a return to a progressive individual income tax system, to improve support for families and to raise female participation and productivity.
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- Apps, Patricia, 1991. "Tax Reform, Population Ageing and the Changing Labour Supply Behaviour of Married Women," Journal of Population Economics, Springer;European Society for Population Economics, vol. 4(3), pages 201-16, August.
- Boskin, Michael J. & Sheshinski, Eytan, 1983.
"Optimal tax treatment of the family: Married couples,"
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Elsevier, vol. 20(3), pages 281-297, April.
- Michael J. Boskin & Eytan Sheshinski, 1979. "Optimal Tax Treatment of the Family: Married Couples," NBER Working Papers 0368, National Bureau of Economic Research, Inc.
- Shelly J. Lundberg & Robert A. Pollak & Terence J. Wales, 1997. "Do Husbands and Wives Pool Their Resources? Evidence from the United Kingdom Child Benefit," Journal of Human Resources, University of Wisconsin Press, vol. 32(3), pages 463-480.
- Patricia F. Apps & Ray Rees, 1999. "Individual versus Joint Taxation in Models with Household Production," Journal of Political Economy, University of Chicago Press, vol. 107(2), pages 393-403, April.
- Apps, P.F. & Rees, R., 1998.
"On the Taxation of Trade Within and Between Households,"
337, Australian National University - Department of Economics.
- Apps, Patricia & Rees, Ray, 1999. "On the taxation of trade within and between households," Journal of Public Economics, Elsevier, vol. 73(2), pages 241-263, August.
- Patricia Apps, 2002.
"Why an Earned income tax credit program is a mistake for Australia,"
Australian Journal of Labour Economics (AJLE),
Bankwest Curtin Economics Centre (BCEC), Curtin Business School, vol. 5(4), pages 549-568, December.
- Patricia Apps, 2001. "Why an Earned Income Tax Credit Program is a Mistake for Australia," CEPR Discussion Papers 431, Centre for Economic Policy Research, Research School of Economics, Australian National University.
- Kathryn Shaw, 1994. "The Persistence of Female Labor Supply: Empirical Evidence and Implications," Journal of Human Resources, University of Wisconsin Press, vol. 29(2), pages 348-378.
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