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On Tax Progressivity

I think that our tax system is unfair because it is remarkably and ridiculously complicated, requires untold man hours and amounts of money to comply with and does not broaden the tax base while at the same time reducing taxation rates.

Barack Obama thinks that our tax system is unfair because it is not “progressive” enough and because under the Bush Administration, it has rewarded the rich at the expense of everyone else.

The Organization for Economic Cooperation and Development doesn’t have anything to say one way or another concerning my contentions regarding the tax system. But it calls shenanigans on Obama’s arguments:

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.

(Via the Smithians.) Something to remember as the tax debate rages and as Team Obama tells us that we need to have tax rates increased on the rich in order to “spread the wealth around.”

Joe the Plumber must be the most inconvenient person in the world as far as the Obamaphiles are concerned. His contentions and arguments keep getting proven right by policy wonks near and far.

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