An International Meeting of the American Accounting Association American Accounting Association 2006 Annual Meeting August 6–9, 2006 Washington, D.C.

Govind S. Iyer
Arizona State University

Andrew Schmidt
Columbia Business School

Ananth Seetharaman
Saint Louis University

Abstract: In January of 2005, President Bush announced the establishment of a bipartisan panel to advise on revenue-neutral options to make the tax code simpler, fairer, and “appropriately progressive.” The Panel recently submitted its final report to the Secretary of the Treasury Department. In this paper, we address the popular misconception that tax progressivity is simply a function of the underlying tax system. Specifically, we develop a graphical method to disentangle, identify and precisely measure the main causes of changing tax progressivity and illustrate the technique’s appeal by decomposing and interpreting several indexes, including the Suits (1977) index. We then demonstrate that legislated changes to the tax system, as contemplated for example by the Panel on Federal Tax Reform, will not necessarily make the distribution of tax burdens more progressive; conversely, we show that tax progressivity varies from year to year even when there are no changes to the tax system.

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