Tax Modelling and the Income Distribution

Ezra Klein has an interesting blog post about how the various components of the tax burden vary across the income distribution. He makes this point:

As you can see, the poorer you are, the more state and local taxes bite into your income. As you get richer, those taxes recede, and you’re mainly getting hit be federal taxes. So that’s another lesson: When you omit state and local taxes from your analysis, you’re omitting the taxes that hit lower-income taxpayers hardest.

Which is important when you model taxes (say to look at earnings vs. net income or consumption). It’s simplest, and hence what most people, to just examine federal taxes. But it’s important to include state and local (which is a LOT more work) taxes because these affect people at various points in the income distribution differently.

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