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Thursday, February 2, 2023
Cut price Basement Progressivity? Constitutional Flat Taxes, Demogrants, And Progressive Earnings Taxation
Samuel D. Brunson (Loyola-Chicago; Google Scholar), Cut price Basement Progressivity? Constitutional Flat Taxes, Demogrants, and Progressive Earnings Taxation, 53 Loy. U. Chi. L.J. 683 (2022):
State and native governments increase income in three major methods: property, gross sales, and revenue taxes. Property and gross sales taxes are inclined to impose a better burden on low-income households. To make sure the equity and progressivity of their total income system, states want their revenue tax to be sufficiently progressive.
4 states face an apparently insurmountable barrier to progressive revenue taxation: their state constitutions mandate that any revenue tax should have a flat fee, relevant to all taxpayers. With no constitutional modification, a troublesome course of, they can not undertake marginal charges that enhance as revenue will increase.
Whereas the obstacle seems insurmountable, nevertheless, it will possibly the truth is be overcome. Furthermore, it could lead these states to undertake a extra progressive revenue tax. By way of using a flat-rate revenue tax with a refundable tax credit score—referred to as a “demogrant”—states can enact a flat-rate revenue tax that’s concurrently remarkably progressive and is extra economically environment friendly than an revenue tax with progressive marginal charges.
This kind of flat-rate tax with a demogrant ought to meet the constitutional necessities of states with obligatory flat-rate taxes. But it surely doesn’t have to be restricted to these states; whereas legislative inertia prevents most states from shifting to a flat-rate tax with a demogrant, the profitable adoption of such a tax by a constitutionally constrained state might encourage different states with out constitutional constraints to think about this extra environment friendly mannequin of progressive revenue taxation.
https://taxprof.typepad.com/taxprof_blog/2023/02/bargain-basement-progressivity-constitutional-flat-taxes-demogrants-and-progressive-income-taxation.html
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