Figure 2: Difference between post-tax taxable income Lorenz curves (continuous
curves refer to taxable income whereas dashed curves refer to pre-tax income).
of income deciles. Figures 3 and 4 compare respectively T2,2 tax cuts against T1,1 and T3,3
tax cuts in terms of the percentage of gainers and the per capita amount of gaining for a set
of deciles of the pre-tax income distribution. T2,2 provides greater per capita gains till the
95% percentile of the income distribution.
What we observe from the distribution of gainers and losers in both figures is that the
T2,2 tax cut is favorable to the 90% tax payer population with less income. Furthermore, a
significant number of tax payers located between the 90% and 95% percentiles still remain
gainers under T2,2 tax cuts. This result indicates that the ‘break-even’ income (pre-tax
income value for which tax units would be indifferent to any of the proposed tax cuts) is
located in this income group. At the top of the income distribution, the situation would
be the reverse. Tax payers above ‘break-even’ income become losers for T2,2 (or gainers
for T1,1 and T3,3). According to Pfahler, the ‘break-even’ income defines a threshold which
determines tax payers’ voting preferences between tax cuts14 . Results reveal that T2,2 would
14To be consistent with the theoretical part, the ’break-even’ income should be defined for both income
bases. For simplicity, we only focus on the aggregate (unidimensional) ’break-even’, which approximates the
sum of the capital and labor break-even incomes.
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