April 7, 2013

U.S. tax code isn’t as progressive as you think

For all the talk of the US having a progressive tax code, I came across this at the Washington Post's WonkBlog.

Essentially, each tax bracket's share of tax is fairly equal to their share of income. And while we're still progressive in terms of taxes, we're not as regressive (thankfully) as European countries that rely on value added taxes that impact lower income individuals more so than higher income individuals.

Tax progressivity ctj

And while the richest Americans pay more than their share of income in taxes, the margins aren’t dramatic. The top one percent pays 24 percent of all taxes but makes 21.9 percent of the money. Particularly if you believe that money quickly loses its value the further you go up the income ladder, a conclusion which the happiness economics literature tends to support (that’s why papers like this tend to look at the log of income), that’s not that progressive a system.

Overall, the American system remains the most progressive tax system in the developed world, whereas most social democracies like France, Germany and Sweden have actively regressive systems heavily reliant on value-added taxes. Then again, U.S. pay-outs aren’t nearly as progressive, and so our government reduces inequality through taxes and transfers much less than peer countries.

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