Karl Smith: The United States's Tax System Is Not Especially Progressive
Karl Smith writes:
In Response to the Mankiw Chart Making the Rounds « Modeled Behavior: Here is the correlation between share of income and the share of taxes within the OECD. The US is the point right at the tip of the trend line. The two upper outliers are Poland on the left and Italy on the right. In any case the US is more or less right on target. Oh and I know that the lack of any context makes this blog even more insidery and opaque than it already is but, it is what it is. I wanted to make the the point but am trying to finish something completely different.
The context is Greg Mankiw's endorsement of Scott Hodge's claim that the U.S has "the most progressive income tax system among industrialized nations."
As often is the case with stuff coming out of the Tax Foundation, it ain't so.
First of all, there is the restriction to income taxes. Why would we care about the income tax system rather than the tax system as a whole?
Second, the U.S. income tax system is not more progressive than the systems of other industrialized nations. The rich in the U.S. pay a greater share of income taxes because the rich in the U.S. capture a greater share of income.[1]
[1] Hodge claims that if the progressivity of the tax system rises, then the ratio of taxes paid by the rich to total taxes should not change as the spread of incomes rises. This is simply false.
