Distribution Tables and Federal Tax Policy: A Scoring Index as a Method for Evaluation

Abstract

Distribution tables have become ubiquitous to the tax policy debates surrounding major legislative initiatives to change tax law at the federal level. The fairness of any proposed change to federal tax policy has become one of the most highlighted components of tax policy discussions. Most research on tax distribution analysis focuses on methodological issues for properly measuring a change in tax burden. However, published research on how different methodologies and presentations of data are used in tax distribution analysis to influence and define the boundaries of the issue has not kept pace. Given the prominent role distribution tables have come to play in the tax policy process, it is appropriate and necessary to have a more thorough understanding of how different methodologies and presentations of results affect the portrayal of proposed changes to federal tax policy. The presentation of tax data within distribution tables can hide or omit important information that is required in order to effectively evaluate the merits of any tax legislation. Many producers of distribution tables show only the information necessary to present their policy preferences in the best possible light. The different economic assumptions and presentations of data used by the various groups that release distribution tables have the inherent consequence of providing the public with numerous tables that are often used as political ammunition to influence and shape debate.

The purpose of this research is to contribute to the tax policy research literature by exploring the limitations and biases inherent in specific designs of tax distribution tables and in specific methodological approaches to tax distribution analysis. This is done by means of a systematic examination of how, in current practice, different designs and methodologies provide an incomplete picture of a proposed change to federal tax policy. By comparing distribution tables as used by different groups to provide alternative perspectives of various tax proposals, the research shows how the use of tax distribution tables often provides misleading results about the impact of proposed tax legislation in order to influence and shape the issues surrounding a proposed change to federal tax policy.

Finally, a method for evaluating tax distribution tables is proposed which will highlight the deficiencies of design and methodology which characterize the present use of tax distribution tables. An index of questions is provided as part of this research project to serve Tax Distribution Table Scoring Index (TDTSI). The TDTSI will assist in balancing the different perspectives presented via tax distribution tables by identifying the biases and limitations associated with different methodologies and presentations of data. The utility of the TDTSI is as an evaluation tool to reveal the perspectives presented and balance any misleading or biased presentations of data in tax distribution tables. The results of the comparative research on the design and methodology of tax distribution tables together with the demonstration of the TDTSI as an analytical tool both contribute to the critical debates in the tax policy research literature as well as provide reform and add value to the practical use of tax distribution tables by policy makers and the public.

Keywords: federal taxation, tax policy, tax distribution analysis, tax reform, income distribution, problem definition, issue framing, agenda setting, strategic management

JEL Classification: D30, H20