Paul L. Caron

Monday, March 21, 2011

Tax Foundation: No Country Leans on Upper-Income Households as Much as U.S.

Tax Foundation logo The Tax Foundation yesterday released No Country Leans on Upper-Income Households as Much as U.S.:

[T]his table shows the share of taxes paid by the richest 10% of households, the share of all market income earned by that group, and the ratio of what that 10% percent of households pays in taxes versus what they earn as a share of the nation's income. 

Progressivity of taxes in selected OECD countries, mid-2000s

1. Tax Share of Richest Decile

2. Income Share of Richest Decile

3. Ratio (1/2)

















Czech Republic
















































New Zealand












Slovak Republic












United Kingdom




United States








The first column shows that the top 10% of households in the U.S. pays 45.1% 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% of households pays more than 40% of the income tax burden (42.2%). Meanwhile, the average tax burden for the top decile of households in OECD countries is 31.6%.

By contrast, column #2 shows that the richest decile in America earned 33.5% percent of the market income in the country. ... 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% and 33.9% 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%.

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.

Update: Tax Update Blog, America's High-Income Taxpayers Lead the Way

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Tracked on Mar 22, 2011 6:31:57 AM


What ever happened to noblesse oblige?

If that is the issue, then it does not matter whether it comes via tax, via gift, or some other way. If, however, the wealthy and powerful have no moral obligation or responsibility to society then of course they find progressive taxation to be undesirable.

Posted by: tax guy | Mar 25, 2011 12:04:13 PM

Payroll taxes are not paid directly from income of the top 10%, but rather from wages of employees that work for the businesses established/owned by the top 10%, as well as from an employer's own funds. Therefore, only personal income in different countries should be compared in order for the author's claim to be valid.

Nevertheless, the estate tax (aka "death tax") is the biggest component of the taxes paid by those with over $5 million in assets, yet it was not included... Probably because most of the top 10% are smart enough to setup a foundation before their death (where they would deposit the biggest chunk of their assets) or do what Warren Buffett did - find a foundation to donate it to. Naturally, this is much better than letting some greedy politicians decide how to appropriate the money. The wealthy just have to be careful not to setup foundations that do more negative than positive for society.

Posted by: WealthReform | Mar 23, 2011 11:44:02 PM

Bill has left the building.

Posted by: Woody | Mar 23, 2011 10:03:09 AM

A next step here would be to put what the average income of the richest decile in USD as a 4th column.

Posted by: Pete | Mar 22, 2011 9:31:55 PM

Just to be clear the US does have an "exit tax" for people who give up their citizenship.

People and corporations can, and do, vote with their feet by moving to different states or even different nations. 70% of the new jobs in the US for 2010 (I think) were created in Texas. Why ? They have the best environment for economic growth. If you want to grow the US economy then we need an economic environment that promotes economic growth. if you want to shrink the US economy, well, we're doing the right things.

Choose. No more putting your heads in the sand. High taxes and oppressive regulations mean fewer jobs, higher prices, fewer choices, even less charity.

Posted by: binary tree | Mar 22, 2011 1:25:21 PM

These kinds of analyses are almost universally weak because the data on incomes is suspect.

For starters, and trivially, the article talks about "rich" but the statistic used is "income." Rich means wealth or assets, income is a flow.

More fundamentally, how is income determined? In US surveys, anyway, it's typically based on IRS data on reported income. But reported income is a very elusive thing, especially for people who have "unearned" income, as from investments. They have considerable latitude to manipulate how they receive income (or defer it), which in turn is driven in part by taxes. So, lower effective taxes will make reported income rise; this is where Pcketty-Saez screwed up, look at their time series data on variations in income and it's clear the main driver of changes is tax law.

Now, take this data issue and spread it across 30-odd countries, and what can I make of this report? Alas, not much.

I like the Tax Foundation and think they do a lot of good work, and emotionally a part of me wishes this were true. But I cannot overcome my skepticism.

Posted by: Marty | Mar 22, 2011 1:18:52 PM

The takeaway is not only is the US a very socialist country at this point...

But the US also has a low-skill underclass that it once did not have. This makes the ratio of rich to poor appear skewed, even though it is not the rich who make more, but rather that the bottom has been lowered...

The underclass of illegal Mexicans is one reason the bottom is lower, as is the destruction of the black family through feminism.

Posted by: Eagle | Mar 22, 2011 12:43:49 PM

I recall reading that countries in which government spending is a higher percentage of GDP inevitably have less progressive tax systems. This stands to reason, because to collect that much money you have to reach deeply into middle class pockets. Governments that spend less can draw a higher percentage of revenue from upper incomes.

Posted by: AMTbuff | Mar 22, 2011 11:49:29 AM

Bill, there appears to be a flaw in your reasoning, as noted already by MG. Do you understand what you're writing? If you did, you would see the obvious contradiction. The 'lies, damn lies, and statistics' quote is just icing on the cake.

Posted by: John Schappert | Mar 22, 2011 11:47:22 AM


The article is specifically about INCOME tax. Obviously, total tax burden involves more than just income tax, and that's somewhat of a different issue.

Yes, most of the various European States have VAT taxes (and of course underground economies to try and skirt them), but the various States in the USA also have sales taxes ranging from 0% to 8%. These things aren't considered in the analysis, and neither are various municipal taxes, nor excise taxes (fuel, utilities, alcohol, etc). Neither is considered that the USA has amongst the highest effective CORPORATE tax rates in the world, and dividend and of course dividend and capital gains tax treatments are also omitted.

Presumably (it isn't stated explicitly) the chart above also considers STATE income taxes in the USA, but those also vary widely from a low of 0% in some States (Delaware, Alaska) to as high as progressive rates going up to 11% in others (Oregon, Hawaii).

So there is a good bit of variability in what individuals at any given income level will be paying in total taxes even within the USA.

How much any given income class "should" be paying in taxes, or what's "fair" is a value judgment about which different people could reasonably disagree.

But objectively, the top 10% of American earners are paying disproportionately more of their incomes in taxes than any other group in the USA, and also in comparison to top earners in other countries.

The reason this is important is that it belies claims by those who would like to raise the top income tax brackets that the "rich" are getting special tax breaks. They aren't.

Posted by: Looking closely | Mar 22, 2011 11:33:29 AM

I'd bet that the total tax collected from the top US decile is bigger than most of those countries GDP.

Posted by: Al | Mar 22, 2011 10:41:36 AM

Bill's authoritative sources? Mother Jones and Think Progess. Progressives are frothing at the mouth over any claim that we don't tax "the rich" enough. They're in high gear. I wonder if they would like to also consider government transfers and tax refunds that exceed more than a taxpayer pays in?

Posted by: Woody | Mar 22, 2011 10:40:11 AM

MG is correct. Bill, I think it is you who earn a charitable D+ for analysis.

Posted by: Mike Petrik | Mar 22, 2011 10:34:34 AM

Maybe the US needs to tax them MORE. The US is unique among developed countries in having 400 individuals owning as much of the economy as the bottom 50% of earners. In that respect, we are more like a third world kleptocracy, where the ueber-rich use legislation and other organs of the state solely for their own benefit.

Posted by: Tom | Mar 22, 2011 10:32:17 AM

Who won the cold war again?

The US is currently less tax-friendly than many countries that were on the other side of the Cold War, currently are.

Posted by: Eagle | Mar 22, 2011 10:31:26 AM

I would take this data with a grain of salt. After all, very few rich people actually pay that much taxes. They are after all surrounded by accountants who know how to work their way around the tax code.

For example according to the IRS, only 33 of the top 400 paid an effective tax rate of 30 to 35 percent. 25 out of 400 paid less than 10%:
Based on IRS data, the real tax rate on the top 1% is an average of 23.27%.

This freakonomics post seems to concur.

Posted by: johnmeister | Mar 22, 2011 9:36:48 AM

Actually it's rather simple what this table misses - the United States actively uses federal taxation to reduce inequality, such as with the Earned Income Tax Credit. Most other countries take in taxes from everyone and then use public cash transfers. When this is factored in, as is done in every other table in the book they cited, the United States is pretty much even with everyone else.

It also ignores state and local income taxes, which tend to be much less progressive than the federal tax.

Finally, it also ignores the rather more important point towards the bottom of the chapter they're citing - the United States does VERY little for the people in the bottom quintile. Counting both public cash transfers and household taxes, the net transfer as a percent of income TO the bottom quintile is less than half of the OECD-23 average - only Poland, Korea, and Switzerland are lower.

In short, they simply cherry-picked a single chart out of a large OECD book and ignored every qualifying statement and larger point.

Fundamentally, the conclusion that the author wants to draw from this chart is correct - the United States' problem is not that the rich don't pay enough taxes. The real problem is that the poor CAN'T pay enough taxes. Increasing income inequality is a sign of a failing country - a robust middle class is a NECESSITY for a strong domestic economy.

Posted by: David | Mar 22, 2011 9:29:57 AM

Does progressive taxation actually take more from the rich? Everyone assumes so but I'm not so sure. Suppose you have a hypothetical country with no income tax and its cashiers make $10/hr and its doctors make $100/hr. The country then imposes a 90% tax on rich doctors. What is the result? Doctors were able to charge more before for a variety of reasons. Is net income really less of a factor in the wage differential than gross? If doctors charge more because they have expensive student loans to pay back, shorter working careers, and do extremely valuable work, why would the market allow their net incomes to fall to the same level as a cashier? It's only logical that they would raise their fees until they had the same economic advantage over the cashier that they had before. So if a doctor grossed $100 per hour before the tax hike, he would demand nearly $1000 after the tax hike to preserve his previous net income of $100/hr. The end result is that the tax is really on everyone but collected through doctors. It may sound suspect but the difference in gross incomes has risen quite a bit over time while the spending gap is flat or falling. I've been looking for evidence to refute this and I can't find it.

Posted by: FreddyB | Mar 22, 2011 9:23:27 AM

This data also shows that income inequality may not be the big, bad boogeyman that libs claim it is. In fact, it may be a naturally occurring phenomenon that is present in each of these countries.

Posted by: AJ Lynch | Mar 22, 2011 9:07:25 AM

In five countries, so it seems, do the richest decile have 30% or more of the income: US, UK, Poland, Ireland, New Zealand. Each of those countries have the highest ratio. As the proportion of the higher decile declines, so does the proportion. What I take that to mean is that more equal earnings results in more equal taxation.

The other thing, and I think this is very important, is that the chart focuses on earnings, not wealth. I would gladly give up all of my earnings if you gave me $200,000,000. Assuming I bury the money in my yard and spent a paltry $10,000,000 per year, I would be very satisfied.

Other countries, on the other hand, tax wealth.

And, as one person pointed out above, these numbers do not include local taxes, which in the US can be more regressive than in other companies.

My bottom line on this is that the paper makes a good case for a lower marginal income tax at the top and the imposition of a wealth tax.

Posted by: Allan | Mar 22, 2011 8:59:36 AM

MG is correct. Bill's citing of the reliance on VAT in other countries supports the argument that the burden of taxation is less concentrated abroad. If this gets a D+ from a journalism professor, then the troubles of the legacy media are not surprising. A D+ is harsh because journalism is an easy major.

Posted by: will r. | Mar 22, 2011 8:17:50 AM

I have to agree with MG, the OCED reports themselves have said exactly the same thing in the past, and what you bring up are perfect examples of it.

Before jumping on the motives of the Tax Foundation, the fact remains, not based on preferred statistics, that the US has far less tax on the lower and middle class without the VAT and related taxes then ANY other nation.

This is just another study that shows it.

The US is the most progressive tax in the world. It really is simple to figure and really hard to refute. Though I would love to see anything you could bring up to counter this argument, I haven't seen it myself. I didn't realize the US was the most progressive tax until I started looking around, I also though the UK and related nations were worst.

Posted by: Josh | Mar 22, 2011 8:10:19 AM

Bill, a handful of European VAT rates:

NL: 19%
UK: 20%
BE: 21%
DK: 25%
FI: 22%
DE: 19%

now, what was that you were saying again?

Posted by: Fred | Mar 22, 2011 8:08:44 AM

MG v. Bill, game, set, match to MG.

Posted by: apetra | Mar 22, 2011 8:01:25 AM

That's what happens when your military spending is almost half of the entire planet. As the saying goes, freedom isn't free. Tea Party at the Pentagon!!!

Posted by: Matt | Mar 22, 2011 7:48:44 AM

The only glaring flaw I can see on a quick glance is that they chose to use the top 10% of earners. The cutoff to make the top 10% is under $100k, I would hardly call that rich.

I would be interested to see the numbers for the top 5% of each nation, or even the top 1%.

Posted by: Todd | Mar 22, 2011 7:41:03 AM

The purpose of this article has to be one thing-----Don't tax me, i.e.,the rich, since the Tax Foundation is supported by the largest corporations in America and some of richest people in the US. As the previous commentator pointed out, the analysis is flawed.

Posted by: Sid | Mar 22, 2011 7:36:44 AM

Bill, you wrote that you didn't like the *headline* from the Tax Foundation, but then you attack the Tax Foundation by saying that it lies with statistics, which goes beyond the headline and deserves more justification from you for such a claim.

The article makes immediately clear that it addresses progressive income taxes and payroll taxes only. Is it misleading because it doesn't include estate taxes on the wealthy, sales taxes paid on luxury items (unless it's a yacht in Rhode Island owned by a Massachusetts Senator-D), or property taxes on nice homes, cars, and planes (unless it's an airplane owned by a Missouri Senator-D)? No.

The chart doesn't try to address any more of the thousands of taxes out there. It doesn't go into the poor enforcement of income tax laws in other countries as compared to ours. Rather it focuses on progressive income taxes, for which this nation is the highest of those countries and was the subject of the discussion. Those statistics are not lying.

You get a D-.

Posted by: Woody | Mar 22, 2011 7:16:53 AM

What is "market income" ?

Posted by: Bob | Mar 22, 2011 7:12:18 AM

Bill you may be right, but including the VAT would make the Tax Foundation's case (that U.S. has a vastly more progressive tax system than rest of the world) even stronger.

Posted by: Milton | Mar 22, 2011 7:06:25 AM

Bill, am I missing something? The point you brought up, only serves to reinforce and expand the Tax Foundation's claim that tax policies around the rest of the world (especially in the so-called welfare states) are more regressive than those of the US. As they show, these countries' income tax regime's are less progressive. In addition, they impose regressive VAT's, fuel taxes, etc. And to add icing on the cake, almost all of them allow wealthy people to avoid taxation by simply not being domiciled in their own country (an no wealthy American citizen has, without paying an Exit Tax). To miss all of this, is to miss an important reality: welfare states are not built on the premise that only a few wealthy can pay for it, but on a societal consensus that all will pay a large amount of one's income towards it (and apparently, also, that if you do become wealthy enough, you have a choice to leave and not be hounded by the tax man). And even this math does not work in the long run.

Posted by: MG | Mar 22, 2011 6:23:20 AM

Tax Foundation is an organization with an agenda whose reports should be given a critical reading. Note that all of the countries listed above but the US also impose a VAT which imposes a disproportionate burden on lower versus higher income taxpayers. By leaving this out of the analysis the story paints only part of the picture. Once that is factored in, the headline of the Tax Foundation story would get a D+ from a journalism professor.

This story is a good example of the old line that there are lies, damn lies and statistics. Statistics when properly used can tell us much so it is sad to see them abused and only conveying half of the story.

Posted by: Bill | Mar 22, 2011 5:40:16 AM