The succession of major federal tax changes in the 1980s and the simultaneous acceleration of trends toward income inequality have intensified interest in how the federal tax system imposes burdens and redistributes resources across income groups. Despite the tax changes, the authors project virtually no change in the overall “effective tax rate” (ETR) between 1980 and 1993, and a slight decline in the progressivity of the overall federal tax structure, with ETRs for the top 1 percent falling by the largest absolute and relative amount. Within the period, ETRs and progressivity fell between 1980 and 1985 and are projected to rise between 1985 and 1993.

Effective tax rates are affected by shifts in tax law; demographics; the level, distribution, and composition of income; and other factors. To examine the direct effects of changes in tax law (abstracting from incentive effects), the authors apply “indexed tax laws” from different years to the income and demographic data for a given year. This method, contrary to the initial results, suggests that the tax system itself became less progressive in the 1980s. Incorporating estimates of the effects of tax rates on cash earnings and realized capital gains does not significantly alter the results.

The paper provides important information on the distributional aspects of recent federal tax reform. In particular, the findings are inconsistent with the view that tax reforms were the driving force behind the widening income distribution.