A reader has written to say that while he agrees that rich Americans should pay more tax, they are already paying a lot and the American middle classes also ought to pay more. What are the facts?
The reader points to a Tax Foundation report showing that the income tax contribution of the richest decile of the American population is greater than that of 23 other OECD countries and that their contribution to taxes is greater than their share in market income (i.e. before taxes and transfers)—so the tax system is progressive. Although their share in market income is very high, it is still less than two other countries—Italy and Poland.
I would argue, however, that even though the American rich are paying proportionately more taxes than the rest of the population, they are still not paying enough.
Here are some statistics from Wikipedia on income inequality among 35 OECD and associated countries using the GINI Coefficient, a measure of inequality (the higher it is, the more unequal the distribution). The US has a GINI coefficient near the top (before taxes 48.6%, after taxes-and-transfers 37.8%). Only Mexico (49.4 and 47.6% respectively), Turkey (40.9% after tax) and Chile (39.4% after tax) exceed the US in after tax inequality. Furthermore, a comparison of pre-and-after-tax-and-transfer GINI coefficients shows that Portugal, Israel, Italy and Germany had larger declines after taxes and transfers than the US, which means that their fiscal structure is much more progressive than in the US. So we need to do more. There is little political will to transfer more income to the poor – transfers which would in any case require more taxes. So more tax on the rich is a logical conclusion.
Tomorrow I will focus a bit more on taxes and who isn’t paying what.
The fact that the US tax system redistributes more wealth than any other tax system in the world shows that America’s inequality is not due to its tax system, it is because of other things. For instance, America is a big country, and big countries tend to be more unequal. If the EU was a country, it would probably be more unequal than America.
Another possible reason is that America’s economy is growing faster than most other developed countries. Although the benefits of that growth are going disproportionately to the rich, I would rather live in America with unequal growth, then in Europe with no growth at all.