Suits index
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
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
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
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 |
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
- ^ JSTOR 1813408.
- ISBN 9788182202597. Retrieved December 5, 2013.
- ^ "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.
- ^ Distributive impacts of alternative tax structures. The case of Uruguay, Retrieved December 5, 2013
- ^ "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.
- Center for Public Policy Priorities. 2007-03-20. Retrieved 2023-03-24.