The Impact of Personal Credits on the Progressivity of the Individual Income Tax.

This research examines the impact of three personal credits, earned income, child care, and elderly, on the progressivity of the federal individual income tax during 1979-1988. Progressivity and income redistribution indices are computed for each credit, using three samples: all filing statuses, married-filing-joint, and combined married-filing-joint and head-of-household. Because married-filing-joint taxpayers are underrepresented in the lower population deciles, credits that can be claimed at an increased rate by low-income taxpayers are sensitive to filing status. The combined sample most clearly shows the effect of tax law changes because it excludes most taxpayers who are not eligible to claim the earned income or child care credits. The progressivity indices indicate that the earned income and the child care credits increased progressivity, while the elderly credit had little effect on tax progressivity because it is small, relative to tax liability. The earned income credit's contribution to income tax progressivity increased after the tax law changes in 1985, 1987, and 1988, as did the contribution of the child care credit after the tax law change In 1982. The redistribution index indicates that only the earned income credit reduces income inequality.