Another dimension along which we evaluate tax policy is whether it is progressive or regressive.
Surprisingly, these ideas do not have solid formal definitions.
Some would argue that a progressive tax system is one in which the rich pay more than the poor. Most would go further and want the rich to pay taxes at a higher rate than the poor.
It’s not clear if that should be measured with average or marginal rates. In practice, progressivity tends to be concerned with taxes that are actually paid, so an average rate tends to be used more commonly.
The idea of progressive taxation goes along with the idea of progressive politics from a century ago (rather than the contemporary usage). A principle of that movement is that redistribution from those doing well to those doing less well is good policy.
If you combine those last two paragraphs, you get to the idea of why the average tax rate is preferred. It is possible to have a system in which the rich face high marginal tax rates, but are able to reduce their tax base so that they don’t actually pay that much. One would hardly call that progressive.
An alternative method would be to start with the evidence that income is distributed unequally. This can be measured with a variety of methods, like Gini coefficients (there are a variety because we’re not very good at measuring this yet). In this sense, a progressive tax system is one that is more unequal than the distribution of income, so that it tends to push the distribution of income towards greater equality (according to an OECD study, all its members have progressive tax systems).
Whatever. Once we settle on a meaning of progressivity for a particular context, then regressivity is the opposite: the poor are paying at a higher rate.
In developed countries, income tax systems tend towards progressivity. However, these countries rely increasingly on more regressive taxes (like sales taxes and FICA in the U.S., or national VATs in Europe).
At this point it’s not clear if the Republican tax reform will increase or decrease progressivity.
The perception is obviously that the reduction in the corporate tax rate will decrease progressivity. But this is not clear at first glance because the incidence of that cut will all heavily on labor. And at second glance it gets harder to measure: if the tax cut helps workers, and they get paid more, they may be subject to higher (more progressive) income taxes.
The removal of the Obamacare tax penalty will make the tax system more progressive, since it tends to fall most heavily on the poor. Some will argue that it will also make income inequality worse, but this is simply wrong. The usual justification for this is that the poor will be more exposed to risks from healthcare costs, but this ignores the fact that those who did pay the tax were already fully exposed to those risks. This is the point of that tax: it is a penalty for leaving yourself open to potential problems. Not paying the tax anymore does not make their healthcare position worse, and actually increases the income available to pay those bills. Personally, I’m kind of ambivalent about this tax; I think I’ve said is in class that it’s a poor attempt at addressing a tough problem, but that the alternatives aren’t good either. Having said that, I do disagree with people who do not think through the progressivity of this move.
I think the limits on SALT deductions are a move towards a more progressive system. These deductions allows many high income people to reduce their overall tax bill. If the goal is collecting a greater portion from the rich, then this move enhanced progressivity.