On whether the US tax system is more progressive than pther industrialized countries
Yes, those excellent people at the 'Sadly, No!' blog knocked this right wing canard on the head the moment the Tax Foundation came out with it.
First comes a real study by a real European research institution, and so far so good:
Income inequality and poverty rising in most OECD countries
21/10/2008 - The gap between rich and poor has grown in more than three-quarters of countries over the past two decades, according to a new OECD report.
OECD’s Growing Unequal? finds that the economic growth of recent decades has benefitted the rich more than the poor. In some countries, such as Canada, Finland, Germany, Italy, Norway and the United States, the gap also increased between the rich and the middle-class.
Countries with a wide distribution of income tend to have more widespread income poverty. Also, social mobility is lower in countries with high inequality, such as Italy, the United Kingdom and the United States, and higher in the Nordic countries where income is distributed more evenly.
Launching the report in Paris, OECD Secretary-General Angel Gurría warned of the dangers posed by inequality and the need for governments to tackle it. “Growing inequality is divisive. It polarises societies, it divides regions within countries, and it carves up the world between rich and poor. Greater income inequality stifles upward mobility between generations, making it harder for talented and hard-working people to get the rewards they deserve. Ignoring increasing inequality is not an option.”
Next, as so often happens, comes a phony report on the real study, cooked up by a wingnut shell organization in order to bamboozle people into thinking that false things are true, and vice versa. Watch and see if you can identify the trick they’re using:
News To Obama: The OECD Says The United States Has The Most Progressive Tax System
by Scott A. Hodge
Barack Obama’s admission that his policies would “spread the wealth around” has ignited a nationwide discussion of how progressive the tax system should be and how it should be used to redistribute income among Americans. Obama has been very successful in bolstering the conventional wisdom that the U.S. tax system does not place a significant enough burden on wealthier households and places too much of a burden on the “middle class.”
But a new study on inequality by researchers at the Organization for Economic Cooperation and Development (OECD) in Paris reveals that when it comes to household taxes (income taxes and employee social security contributions) the U.S. “has the most progressive tax system and collects the largest share of taxes from the richest 10% of the population.” As Column 1 in the table below shows, the U.S. tax system is far more progressive—meaning pro-poor—than similar systems in countries most Americans identify with high taxes, such as France and Sweden.
Even after accounting for the fact that the top 10 percent of households in the U.S. have one of the highest shares of market income among OECD nations, our tax system is second only to Ireland in terms of its progressivity for households.
The table also shows that the U.S. collects more household tax revenue from the top 10 percent of households than any other country and extracts the most from that income group relative to their share of the nation’s income.
Of course, these measures do not include the litany of other taxes households pay in each country, such as Value Added Taxes, corporate income taxes and excise taxes, but they do give a good indication that our system places a heavier tax burden on high-income households than other industrialized countries.
The study also shows that…
The trick? Woo, it’s an old one. If you leave aside the fact that many countries generate much (or most) of their revenue through devices such as VAT taxes, and look only at American-style income taxes, you’ll notice that upper-income people in the US pay a high amount of the total tax dollars collected. Not a high percentage of their income, but a lot of the total dollars. This is because (choose one of the following):
...
http://www.sadlyno.com/archives/13611.html So: the OECD report marks out the USA as one of the most unequal countries, with social immobility as a result. Strange, then, to shout out as if this report has said the USA was doing well compared to other countries.
And the kicker is that later bit in the Tax Foundation article, that refers to other taxes like VAT, and cash transfers. It continues:
The study also shows that while most countries rely more on cash transfers than taxes to redistribute income, the U.S. stands out as "achieving greater redistribution through the tax system than through cash transfers."<1>
Overall, the study finds that income transfer systems (social insurance, welfare) are "significantly more efficient than tax systems at reducing inequality, as well as more effective..."
But:
our system places a heavier tax burden on high-income households than other industrialized countries is a lie, really. Because indirect taxes place heavier burdens on middle and low income households than high ones, and looking at the burden before you've taken that into account is disingenuous at best. Let's look at the same report's figures for the Gini coefficients for the G7 countries before taxes, and after taxes and transfers -
available here, for the mid-2000s - remember, a high Gini coefficient means more inequality in income:
Before:
Italy 0.56
Germany 0.51
France 0.48
US 0.46
UK 0.46
OECD average: 0.45
Canada 0.44
Japan 0.44
After:
US 0.38
Italy 0.35
UK 0.34
Japan 0.32
Canada 0.32
OECD average: 0.31
Germany 0.30
France 0.28
So, we see, it's only
after the tax and transfers system that the US becomes the most unequal country of the seven. Why? Well, there's that VAT/sales tax/other indirect taxes thing; and there's healthcare. Most countries take a large payroll tax, not particularly progressive, to fund healthcare - and so the US 'household tax' system
looks more progressive, because that doesn't appear in it (for general healthcare, anyway). But when the 'transfers' are use to allow for the benefit this gives everyone in the countries with a universal healthcare system (and similar benefits people get from their taxes), we see the US becomes the most unequal country.
Basically, the US is, in global terms, a libertarian paradise - the government takes relatively little in taxes, and does even less that's useful with it (after all, the US spends far more of its budget on the military than the other G7 countries). The other countries do thing like fund healthcare, and as a net result, are more progressive.
If you actually summarize the Tax Foundation article, without the quotes designed for gullible people to take and say "lookie, lookie, the US already has a more progressive tax system!", when they don't understand what the OECD was talking about, it says:
Income transfer systems are significantly more efficient than tax systems at reducing inequality, as well as more effective
the U.S. achieves greater redistribution through the tax system than through cash transfers
ie, the US is Doing It All Wrong.
