The Impact of Tax Burden on Income Inequality in the United States

This thesis describes the history and context of income inequality in relation to U.S. tax policy, both at the federal and state levels. It discusses individually the factors affecting income inequality at the global level, income inequality and its history at the U.S. level, and the U.S. tax system with a focus on the income tax. The aim of the paper is to assess the link between the progressivity of the US tax environment, particularly the state income tax, and the level of income inequality, as expressed by the Gini index of each state, using both descriptive and multiple regression analysis. According to the multiple regression analysis, the effective tax rate is most positively associated with higher values of the Gini coefficient. However, given the literature, this is unlikely to be causal, i.e. higher tax burdens do not cause higher income inequalities, but their occurrence is linked in the sense that countries with higher income inequalities try to counteract their impact through greater tax progression.