America Already Has The Most Progressive Tax Code Of Any Western Nation


The more the rich pay in America, the more people insist that they’re getting a free ride. Never mind the fact that 47% of Americans pay no income tax at all, we have the 2nd highest corporate income tax in the world, and even if we confiscated EVERYTHING the rich are making, it wouldn’t fix our deficit woes. Somehow, they’re still getting off easy.

If only Americans would stop demanding all these tax cuts and would instead embrace the tax policies of our more enlightened European superiors! Well, here’s a little bad news for liberals who think that way. We’re already putting a higher tax burden on the rich in America than they do in Western Europe:

During my recent testimony before the Senate Budget Committee (found here), I cited an OECD statistic that the U.S. has the most progressive income tax system among industrialized nations.

The first column shows that the top 10 percent of households in the U.S. pays 45.1 percent of all income taxes (both personal income and payroll taxes combined) in the country. Italy is the only other country in which the top 10 percent of households pays more than 40 percent of the income tax burden (42.2%). Meanwhile, the average tax burden for the top decile of households in OECD countries is 31.6 percent.

By contrast, column #2 shows that the richest decile in America earned 33.5 percent of the market income in the country in 2005 – the year in which this snapshot was taken, but little has changed since then. But, a few other countries do have a greater or similar concentration of income as does the U.S. For example, the OECD table shows that the wealthiest decile of households in Italy and Poland earn a greater share of their country’s market income than do our “rich” – 35.8 percent and 33.9 percent respectively – while the share of income earned by the top decile of households in the U.K. is about on par with those in the U.S. at 32.3 percent.

The table then adjusts for the underlying allocation of income by showing the ratio of income taxes paid to the share of income earned by the top decile in each country. The ratio for U.S. households is 1.35, far greater than the ratio of taxes to income in any other country. Even in the three countries with a comparable distribution of income, the ratio of taxes to income was less, 1.18 in Italy, 0.84 in Poland, and 1.20 in the U.K.

Interestingly, countries with top personal income tax rates that are higher than in the U.S., such as Germany, France, or Sweden, have ratios that are closer to 1 to 1. Meaning, the share of the tax burden paid by the richest decile in those countries is roughly equal to their share of the nation’s income.

In other words, Europe may have higher tax rates overall, but their tax burden is more evenly divided. Incidentally, that’s much healthier and more feasible economically than trying to get the rich to pay everyone else’s way.

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