The Widening Gap Under the Internal Revenue Code: The Need for Renewed Progressivity

The United States\u27 progressive tax system has been a part of the income tax structure since the enactment of the historic 1913 income tax act and should continue to be maintained today for several reasons. First, a change in the tax system could have adverse effects on minorities and women. Second, the tax system is based on an ability to pay concept, and it is difficult to devise a system that adheres to that principle yet satisfies revenue demands and other considerations. While there have been significant societal changes since the country adopted the progressive tax structure, these changes do not warrant a modification of the current scheme of taxation. One significant change is the creation of the global society. It is apparent that globalization has increased competition amongst countries. One argument that has been asserted is that countries that use the progressive tax system and countries that tax capital could lose business to lower taxing countries. However, it is premature to conclude that globalization warrants a retrenchment from this country\u27s use of the progressive tax structure. Several of our country\u27s competitors maintain progressive tax structures, impose higher marginal rates and tax capital. During the last twenty years, the after-tax income of taxpayers in the top 10 income has increased while it has decreased for lower income taxpayers in the United States. The trend of reduced progressivity between the wealthiest taxpayers and others has been corrected to some degree by statutory enactments such as Roth IRAs and educational IRAs. While Congress has made some advances toward reversing the recent trends in tax distribution, additional steps toward ensuring progressivity are required for the low to middle income taxpayers. The most equitable approach would be to reduce the lowest tax rate to 10 percent for every taxpayer. This is both a viable and an equitable approach. It provides a tax cut to almost every taxpayer, but the tax cut is implemented in a manner that preserves the integrity of the progressive tax scheme