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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 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..."



Obama has started an important debate for America, but it is too bad he did so with less than one week before the presidential election.







Table 4.5. Alternative measures of progressivity of taxes in selected OECD countries, mid-2000s

















































Concentration of household taxes and market income





Percentage share of richest decile









1. Concentration coefficient for household taxes





2. Gini coefficient of market income





3. Ratio of concentration coefficients (1/2)





1. Share of taxes of richest decile





2. Share of market income of richest decile





3. Ratio of shares for richest decile (1/2)



United States





0.59





0.46





1.28





45.1





33.5





1.35



Ireland





0.57





0.42





1.37





39.1





30.9





1.26



Italy





0.55





0.56





0.98





42.2





35.8





1.18



Australia





0.53





0.46





1.16





36.8





28.6





1.29



United Kingdom





0.53





0.46





1.16





38.6





32.3





1.20



New Zealand





0.50





0.47





1.05





35.9





30.3





1.19



Canada





0.49





0.44





1.13





35.8





29.3





1.22



Netherlands





0.47





0.42





1.11





35.2





27.5





1.28



Czech Republic





0.47





0.47





0.99





34.3





29.4





1.17



Germany





0.47





0.51





0.92





31.2





29.2





1.07



OECD-24





0.43





0.45





0.96





31.6





28.4





1.11



Finland





0.43





0.39





1.11





32.3





26.9





1.20



Slovak Republic





0.42





0.46





0.92





32.0





28.0





1.14



Luxembourg





0.42





0.45





0.92





30.3





26.4





1.15



Belgium





0.40





0.49





0.80





25.4





27.1





0.94



Austria





0.38





0.43





0.88





28.5





26.1





1.10



Korea





0.38





0.34





1.12





27.4





23.4





1.17



Poland





0.38





0.57





0.67





28.3





33.9





0.84



Japan





0.38





0.44





0.85





28.5





28.1





1.01



Norway





0.38





0.43





0.87





27.4





28.9





0.95



France





0.37





0.48





0.77





28.0





25.5





1.10



Denmark





0.35





0.42





0.84





26.2





25.7





1.02



Sweden





0.34





0.43





0.78





26.7





26.6





1.00



Iceland





0.27





0.37





0.72





21.6





24.0





0.90



Switzerland





0.22





0.35





0.63





20.9





23.5





0.89



















































































Source: Computations based on OECD income distribution questionnaire.
 
If the Palin/McCain ticket wins, it'll be this progressive...



<img src="http://a.236.com/images/photo2/6914/thumbs/HILLBILLY_s1-490.jpg" alt="" />
 
It's interesting that you have decided to quote the OECD. In any case, as "progressive" as you make the current situation sound, the Gini coefficient of the US is nothing to be proud of. I would also direct you to the following articles by the OECD:



<a href="http://www.oecd.org/document/25/0,3343,en_2649_201185_41530009_1_1_1_1,00.html">Income inequality and poverty rising in most OECD countries</a>



<a href="http://www.oecd.org/document/53/0,3343,en_2649_33933_41460917_1_1_1_1,00.html">Growing Unequal? Income Distribution and Poverty in OECD Countries</a>



Some key points about the US:



Rich households in America have been leaving both middle and poorer income groups behind. This has happened in many countries, but <strong>nowhere has this trend been so stark as in the United States</strong>. The average income of the richest 10% is US$93,000 US$ in purchasing power parities, the highest level in the OECD. However, the poorest 10% of the US citizens have an income of US$5,800 US$ per year ? about 20% lower than the average for OECD countries.



The distribution of earnings widened by 20% since the mid-1980s which is more than in most other OECD countries. This is the main reason for widening inequality in America.



Redistribution of income by government plays a relatively minor role in the United States. Only in Korea is the effect smaller. This is partly because the level of spending on social benefits such as unemployment benefits and family benefits is low ? equivalent to just 9% of household incomes, while the OECD average is 22%. <strong>The effectiveness of taxes and transfers in reducing inequality has fallen still further in the past 10 years.</strong>



Child poverty ? that is, children in a household with less than half the median income ? has fallen since 1985, from 25% to 20% but poverty rates among the elderly increased from 20 to 23%. Both of these trends are in the opposite direction to those of the other countries in the OECD.



Social mobility is lower in the United States than in other countries like Denmark, Sweden and Australia. Children of poor parents are less likely to become rich than children of rich parents.



Wealth is distributed much more unequally than income: the top 1% control some 25-33% of total net worth and the top 10% hold 71%. For comparison, the top 10% have 28% of total income.
 
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