Saturday, February 11, 2012
Income taxes in America are more progressive than in other rich countries--according to an authoritiative official study which, to my knowledge, has not been contradicted. The OECD's report Growing Unequal, on poverty and inequality in industrial countries, includes a table that provides two measures of income tax progressivity in 2005. ... Here they are in an excel file. According to one measure, America's income taxes were the most progressive of the 24 countries in the sample, except for Ireland. According to the other, they were the most progressive full stop. (A more recent OECD report, Divided We Stand, uses different data, a smaller sample of countries and a different measure of progressivity: the results are similar.) Before you ask, this ranking takes account of employee-side payroll tax as well as the federal income tax. ...
Why, according to the OECD, is the US system so progressive? Not because the rich face unusually high average tax rates, but because middle-income US households face unusually low tax rates. ... How does the picture change if you take indirect taxation into account? That would make the US system look even more progressive, because the US doesn't rely on a flat consumption tax like most other governments.