Suits index

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The Suits index of a public policy is a measure of tax progressiveness,[1] named for economist Daniel B. Suits. Similar to the Gini coefficient, the Suits index is calculated by comparing the area under the Lorenz curve to the area under a proportional line.[2] For a progressive tax (for example, where higher income tax units pay a greater fraction of their income as tax), the Suits index is positive. A proportional tax (for example, where each unit pays an equal fraction of income) has a Suits index of zero, and a regressive tax (for example, where lower income tax units pay a greater fraction of income in tax) has a negative Suits index.[3] A theoretical tax where the richest person pays all the tax has a Suits index of 1, and a tax where the poorest person pays everything has a Suits index of −1. Tax preferences (credits and deductions) also have a Suits index.[4]

Types of tax

Income tax

By definition, a

marginal tax rates
at higher income. These effects combine to make income taxes generally progressive, and therefore have a positive Suits index.

Sales tax

Sales taxes are generally charged on each purchase, with no low income exemption. Additionally, lower income tax units generally spend a greater proportion of income on taxable purchases, while higher income units will save or invest a larger part of income. Therefore, sales taxes are generally regressive, and have a negative Suits index.

Excise taxes

Excise taxes
are typically charged on items like gasoline, alcohol or tobacco products. Since the tax rate is typically high, and there is a practical limit to the amount of product that can be consumed, this tax is generally more regressive and has a very negative Suits index.

Properties

The Suits index has the useful property that the total Suits index of a group of taxes or policies is the revenue-weighted sum of the individual indexes. The Suits index is also related closely to the Gini coefficient. While a Gini coefficient of zero means that everyone receives the same income or benefit as a per capita value, a Suits index of zero means that each person pays the same tax as a percentage of income. Additionally, a poll tax has a Suits index equal to the negative of the Gini coefficient for the same group.[1]

Examples

Suits index by tax in Minnesota, 2004[5]
Tax Suits index
Estate tax 0.270
Individual income tax 0.219
State taxes only 0.026
Total state and local taxes −0.024
Alcoholic beverage excise tax −0.083
Residential property taxes including impact of property tax refunds −0.103
Mortgage and deed taxes −0.130
Statewide property tax −0.131
Motor vehicle sales tax −0.142
Corporate franchise tax −0.145
Motor vehicle registration tax −0.147
General sales and use taxes −0.175
General property taxes −0.178
Local taxes only −0.178
Residential property taxes without impact of property tax refunds −0.180
Motor fuels excise tax (gas tax) −0.253
MinnesotaCare taxes −0.271
Gambling taxes −0.477
Cigarette and tobacco excise taxes −0.486
Suits index by tax in Texas, 2007[6]
Tax Suits index
Natural gas tax 0.001
School property tax −0.06
Franchise tax −0.11
Motor vehicle sales tax −0.14
Sales tax −0.18
Gasoline tax −0.25

References

  1. ^
    JSTOR 1813408
    .
  2. . Retrieved December 5, 2013.
  3. ^ "Confidence Intervals for the Suits Index" (PDF). National Tax Journal. March 2003. Archived from the original (PDF) on 2007-09-27. Retrieved 2007-05-16.
  4. ^ Distributive impacts of alternative tax structures. The case of Uruguay, Retrieved December 5, 2013
  5. ^ "Tax Fairness Declining in Minnesota: Explaining the 2007 Tax Incidence Study". Minnesota Budget Project. April 2007. Archived from the original on 2016-08-07. Retrieved 2023-03-24.
  6. Center for Public Policy Priorities
    . 2007-03-20. Retrieved 2023-03-24.