Tax Progressivity and the Suits Index Taxes may be described as progressive, proportional, or regressive.

The effective tax rate that is, the ratio of taxes paid to income can be used to compare tax burdens across income categories. A progressive tax is one in which the effective tax rate rises as income rises. A regressive tax is one in which the effective tax rate falls as income rises. However, it is sometimes difficult to summarize the overall distribution of a tax (progressive, proportional, or regressive) from the individual effective tax rates. The Suits index is often used as a summary measure of progressivity or regressivity. The Suits index has numerical properties that make it easy to identify the degree of progressivity or regressivity of a tax. A proportional tax has a Suits index equal to zero; a progressive tax has a positive index number in the range between 0 and +1. In the extreme case, if the total tax burden were paid by the richest households, the index would be a value of +1. For a regressive tax, the Suits index has a negative value between 0 and -1, with -1 being the most regressive value. Table 1-4 presents full-sample Suits indexes for selected Minnesota state and local tax groups in 2008 and 2013. The only major progressive tax is the personal income tax. Consumption taxes are the most regressive category. Taken as a whole, the system of Minnesota taxes was regressive in 2008 (a full-sample Suits index of -0.060). State taxes were roughly proportional (-0.004), and local taxes were regressive (-0.202). Between 2008 and 2013, Minnesotas overall population-decile Suits index is expected to rise (moving toward zero) from -0.060 to -0.052. Table 1-4 Full-Sample Suits Indexes for Selected Minnesota State and Local Taxes 2008 2013 Tax Category Suits Index Suits Index

Personal Income Tax Sales Taxes (State & Local) Business Taxes Individual Taxes All State Taxes All Local Taxes Total Taxes

+0.218 -0.229 -0.204 -0.020 -0.004 -0.202 -0.060

+0.207 -0.217 -0.195 -0.010 +0.009 -0.192 -0.052

Unless otherwise noted, the Suits indexes cited in this study are calculated using the full sample of over 100,000 records. A Suits index calculated using only totals for ten groups of households (a population-decile Suits index) will differ from this full-sample Suits index. See Chapter 4, Section B for further explanation. 6
Tables 2-1 and 3-1 below show both the full-sample Suits index and the population-decile Suits index for each individual tax in 2008 and 2013 respectively.
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