Paul L. Caron

Friday, February 17, 2012

The Facts About Tax Progressivity

Lucy Barnes (Nuffield College, Oxford), The Facts About Tax Progressivity:

[T]he question of how progressive the system is an empirical question. In fact, the system of taxation in the United States is relatively progressive. What makes this fact surprising is that tax progressivity and fiscal redistribution (the reduction of inequality by government action) are often conflated, and it remains true that redistribution in the US is low, due mainly to the relatively small size of the US government.

(Hat Tip: Greg McNeal.)

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TMLutas, the charts in the original paper (linked in the article) are based upon Luxembourg Income Study data. For progressivity, the paper has two charts -- a chart of direct progressivity (also using the weighted Kakwani index), which includes all 13 countries, and then the second chart of 6 countries for all taxation. According the the authors, the Luxembourg Income Study database only had enough data to estimate consumption taxes for the UK, Belgium, France, Switzerland and Germany, and they were able to use U.S. Department of Labor data to make a U.S. comparison possible.

So no cherry picking, just limited data. But, if you want to expand the chart, you might well be able to get the necessary consumption tax data from the other seven countries.

Posted by: Paul Decker | Feb 19, 2012 12:59:31 AM

Too bad Lucy didn't define Gini for us.

Posted by: Claude Hopper | Feb 18, 2012 8:00:31 PM

It would be very helpful if the tax progressivity chart had the same countries on it as the income redistribution chart. The difference in the number of countries leads to the suspicion of cherry picking.

Posted by: TMLutas | Feb 18, 2012 6:21:51 PM

While the US government seems relatively small, the difference decreases when the federal system of the US government is taken into account. The states have independent taxing authority greater than in many of the countries commonly compared.

However, another factor is that quite a bit of the US government spending and redistribution goes to middle class recipients (including middle class elderly) rather than the poor.

Posted by: John Thacker | Feb 18, 2012 4:34:14 PM