The Suits index of a public policy is a measure of collective progressivity, named for economist

Economist

An economist is a professional in the social science discipline of economics. The individual may also study, develop, and apply theories and concepts from economics and write about economic policy...

 Daniel B. Suits. Similar to the Gini coefficient

Gini coefficient

The Gini coefficient is a measure of statistical dispersion developed by the Italian statistician and sociologist Corrado Gini and published in his 1912 paper "Variability and Mutability" ....

, the Suits index is calculated by comparing the area under the Lorenz curve

Lorenz curve

In economics, the Lorenz curve is a graphical representation of the cumulative distribution function of the empirical probability distribution of wealth; it is a graph showing the proportion of the distribution assumed by the bottom y% of the values...

 to the area under a proportional line. For a progressive tax

Progressive tax

A progressive tax is a tax by which the tax rate increases as the taxable base amount increases. "Progressive" describes a distribution effect on income or expenditure, referring to the way the rate progresses from low to high, where the average tax rate is less than the marginal tax rate...

 (for example, where higher income tax units pay a greater fraction of their income

Income

Income is the consumption and savings opportunity gained by an entity within a specified time frame, which is generally expressed in monetary terms. However, for households and individuals, "income is the sum of all the wages, salaries, profits, interests payments, rents and other forms of earnings...

 as tax), the Suits index is positive. A proportional tax

Proportional tax

A proportional tax is a tax imposed so that the tax rate is fixed. The amount of the tax is in proportion to the amount subject to taxation. "Proportional" describes a distribution effect on income or expenditure, referring to the way the rate remains consistent , where the marginal tax rate is...

 (for example, where each unit pays an equal fraction of income) has a Suits index of zero, and a regressive tax

Regressive tax

A regressive tax is a tax imposed in such a manner that the tax rate decreases as the amount subject to taxation increases. "Regressive" describes a distribution effect on income or expenditure, referring to the way the rate progresses from high to low, where the average tax rate exceeds the...

 (for example, where lower income tax units pay a greater fraction of income in tax) has a negative Suits index. A theoretical tax where the richest person pays all the tax has a Suits index of 1, and a tax where the poorest person pays everything has a Suits index of −1. Tax preferences (credits and deductions) also have a Suits index.

Income tax

By definition, a flat income tax has a Suits index of zero. However, almost all income tax

Income tax

An income tax is a tax levied on the income of individuals or businesses . Various income tax systems exist, with varying degrees of tax incidence. Income taxation can be progressive, proportional, or regressive. When the tax is levied on the income of companies, it is often called a corporate...

 systems allow for some amount of income to be earned without tax (an exemption

Tax exemption

Various tax systems grant a tax exemption to certain organizations, persons, income, property or other items taxable under the system. Tax exemption may also refer to a personal allowance or specific monetary exemption which may be claimed by an individual to reduce taxable income under some...

 amount) to avoid collecting tax from very low income units. Also, most income tax systems provide for higher marginal tax rates at higher income. These effects combine to make income taxes generally progressive, and therefore have a positive Suits index.

Sales tax

Sales tax

Sales tax

A sales tax is a tax, usually paid by the consumer at the point of purchase, itemized separately from the base price, for certain goods and services. The tax amount is usually calculated by applying a percentage rate to the taxable price of a sale....

es are generally charged on each purchase, with no low income exemption. Additionally, lower income tax units generally spend a greater proportion of income on taxable purchases, while higher income units will save or invest a larger part of income. Therefore, sales taxes are generally regressive, and have a negative Suits index.

Excise taxes

Excise taxes are typically charged on items like gasoline, alcohol or tobacco products. Since the tax rate is typically high, and there is a practical limit to the amount of product that can be consumed, this tax is generally more regressive and has a very negative Suits index.

Properties of Suits indexes

The Suits index has the useful property that the total Suits index of a group of taxes or policies is the revenue-weighted sum of the individual indexes. The Suits index is also related closely to the Gini coefficient. While a Gini coefficient of zero means that all persons receive the same income or benefit as a per capita value, a Suits index of zero means that each person pays the same tax as a percentage of income. Additionally, a Poll Tax

Poll tax

A poll tax is a tax of a portioned, fixed amount per individual in accordance with the census . When a corvée is commuted for cash payment, in effect it becomes a poll tax...

has a Suits Index equal to the negative of the Gini coefficient for the same group.

Criticism

Critics of the Suits index state that because of lifetime income smoothing, consumption is a better measure of economic well-being to compare tax burdens.

Examples of Suits indexes

Tax	Estimated Suits index
Gasoline tax	−0.25
Motor vehicle sales tax	−0.14
Cigarette and tobacco excise taxes	−0.486
State income tax (Minnesota)	0.21