Government Spending

Did You Know U.S. Federal Tax is More Progressive Than Most of Europe's?


Over at the Washington Examiner, Reason columnist and Mercatus Center economist Veronique de Rugy provides a crash course in tax progressivity. It turns out that despite America's lower nominal rates, top U.S. earners kick in more than their European counterparts when it comes to federal taxes:

Over the last 30 years, the progressivity of the rate structure has decreased in the United States. In the 1980s, the top marginal rate used to be 70 percent while it stands at half that today….

However, this decline in nominal progressivity doesn't tell you much about the actual progressivity of a tax system. That depends on the size of the exemptions, which are relatively large and frequent for U.S. taxpayers.

The OECD data shows that other countries tend to have much higher tax rates than the U.S. does but the threshold of income at which the top rate in applied is much lower.

For instance, it takes almost 3.4 times less income in France than in the U.S. to be taxed at the highest French rate. It means that other countries have higher rates but also more regressive systems.

By contrast, the United States has lower top lower rate but these lower rates kick at a much higher level—meaning that it take much more income to face the highest rates–hence the steeper progressivity.

Other factors, such as Europe's reliance on consumption-based taxes such as the V.A.T., also mean that a higher percentage of the tax burden in America is borne by high-income earners.

Read the whole thing, which was written in response to a blog post by New York magazine's Jonathan Chait (late of The New Republic and a frequent, if typically wrong, critic of Reason writings).

De Rugy's original article on progressivity is here. A snippet:

The richest 10 percent of U.S. households (those making $112,124 or more) contribute a greater share of taxes (45.1 percent of all income taxes) than their counterparts in any other industrialized nation.

Meanwhile, the average tax burden for the top 10 percent of households in OECD countries is 31.6 percent of the revenue collected, well below the percentage in America.

Interestingly, in France, a notorious welfare-state government, only 28 percent of revenue comes from the top 10 percent of income earners. As for the top 1 percent of Americans, their share of federal taxes paid is roughly 30 percent.

A week or so ago, I talked with my frequent collaborator de Rugy about why the Occupy movement should recognize the elderly rather than "the 1 Percent" as its true enemy:

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  1. Does she dictate her columns?

    Because they read in her accent.

    Weird and kinda cool.

    1. She learned from the best: John Stossel.

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  2. Progressive taxation is class warfare.

  3. what’s more amazing is how a d-bag like Jonathan Chait is actually employed by someone.

  4. I don’t see where she actually provides data showing that the US system is more progressive than the other OECD systems. She gives a lot of reasons why it might be more progressive (more exemptions, more social spending through the tax code, high rates kick in a higher levels, etc.), but there’s no data.

    1. That’s the data for her first article, which argued that the top 10% pay a higher share of the overall tax burden in the US than in other OECD countries.

      Her second article, the one discussed in the blog post, argues that the top 1%/10% pay a higher share of their incomes relative to other income groups in the US than in other OECD countries. She provides no data to back up that claim.

      1. There is a chart in one of her blog articles somewhere. Click around. She provided it.

        1. Oh wait, I misread you.

          But, umm…its fucking math.

          If in the US, the top 10% pay 40% and in Europe they pay 30%, then the ratio of top 10%:bottom 90% is 2:3 in the US and 3:7 in Europe.

          1. It’s not math unless you also know the distrution of income, the effective tax rate, and the cut-offs. She doesn’t provide any of those.

            1. Yeah, there’s a kind of subtle thing here which I’d never considered. To illustrate it, consider two imaginary countries, pseudo-US and pseudo-Europe. Each of these countries has a grand total of two residents.

              In pseudo-US, one resident makes $20,000/year and the other makes $90,000/year.

              In pseudo-Europe, one resident makes $40,000/year and the other makes $70,000/year.

              So, the two countries have the same GDP, but pseudo-America is more unequal than pseudo-Europe.

              Now, suppose that in pseudo-America, the rich person pays 20% taxes and the poor person pays 10% taxes, so the rich person pays $18,000 and the poor person pays $2,000. Thus, the upper 50% in this country contributes 90% of the total tax receipts, and the lower 50% pays 10% of the total tax receipts.

              In pseudo-Europe, meanwhile, the rich person pays 22% taxes and the poor person pays 5% taxes. So the rich person pays $15,400 and the poor person pays $2,000. Okay, so the upper 50% of the country in pseudo-Europe only contributes 88.5% of the total tax receipts, and the lower 50% pays 11.5% of the total tax receipts.

              Despite the fact that the rich person in pseudo-America there pays a higher percentage of the tax receipts, it’s very difficult to argue that pseudo-America is “more progressive” than pseudo-Europe. The rich person pays a lower percentage of his income, the poor person pays a higher percentage of his income. But because the rich pseudo-American is richer than the rich pseudo-European, he ends up paying a larger actual quantity of money.

              Yglesias and Delong are arguing that, basically, this (much more complicated, of course) is the reality of America and Europe, while de Rugy and Sumner are arguing that it is not. I don’t know which to believe. Both tell plausible stories, neither are showing much in the way of hard figures.

  5. Chait must have an impressive layer of scar tissue from all the bitch slappings he has received.

  6. you don’t have to take her word for it.

    scott sumner with some links to gregory mankiw in his post

    1. I don’t know, Sumner says in that article that “important work by Peter Lindert” shows that European tax schemes are regressive, but he doesn’t provide any numbers or anything.

      I’m interested in the answer to this question. I see a plausible explanation for how European overall taxes are less progressive than American overall taxes, and I’m willing to believe this is true. But it’s counter-intuitive, and I think that we’re owed some hard numbers from de Rugy or Sumner.

  7. The richest 10 percent of U.S. households (those making $112,124 or more) contribute a greater share of taxes (45.1 percent of all income taxes) than their counterparts in any other industrialized nation.


    Grrr. Income is not wealth. Unless you think someone who lives in New Mexico off $90,000 in dividends from a $3 million stake in Chevron is not among the “wealthiest” 10%, while a 30 year old New Yorker who makes $120,000 and has $20,000 in savings is.

  8. Have you read my predictions on the Republican nominee? Romney is doomed!…..pportunity

  9. De Rugy is a geezer.
    I Hope she ends up eating cat food.

  10. It’s how I get bait.QBStimPL4

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