THE TREATMENT APRIL 6, 2009
Following up on my previous item--about Clive Crook's latest column and, more generally, whether we can pay for major domestic programs with progressive taxes--I checked in with the Center on Budget and Policy Priorities.
A key question underlying this debate is just how progresssive our tax system is now. Chuck Marr, who is the Center's Director of Federal Tax Policy, wrote back with the following:
- Keep in mind that income in the U.S. is more unequal than in other OECD countries. Part of why they pay a larger share is that they make a larger share. (Something Crook acknowledges.)
- Consider that, according to the Congressional Budget Office, the top one percent of Americansreceived 18.1 percent of pre-tax income and 15.6 percent of after-tax income in 2005 (the latest year for which data is available). That implies modest progressivity, but the emphasis is on "modest."
- While Crook doesn't specifically make this point, his piece (like many others) seems to assume that Obama is proposing to tax the top end at unprecedented levels. But Obama would tax the top percent at levels close to, or slightly below, levels that existed during the Clinton years. And these folks did pretty well then. (We have a paper on this.)
- That said, if the U.S. really moved towards a European-sized welfare state--which would obviously be highly unlikely, given its history--middle class people would need to pay higher taxes to support it.
Update: Matthew Yglesias was all over this more than a month ago, writing "the left will need to embrace some revenue enhancements that are not-so-progressive in their distributional impact."
Matt also had some snazzy charts--which, in turn, came from Lane Kenworthy. Kenworthy did his own analysis of the data and concluded that
The chief contribution of taxes to inequality reduction is indirect.
Taxes provide the money to fund the transfers that reduce inequality. ... Affluent countries that achieve substantial inequality reduction do
so with tax systems that are large but no more progressive than ours.
Below is one of Kenworthy's charts. As you'll see, the U.S. tax system is realtively progressive, measured purely in terms of redistribution, but not by a wide margin; pretty much all of the countries are clustered around the same level. When it comes to redistribution on the spending side, however, the U.S. is dead last, far behind the leaders in Western Europe and Scandinavia.
Note that one reason the Europeans (along with Australia and to a lesser extent, Canada) can redistribute so much without an outcry is that they are spending much more overall, so that everybody derives substantial benefits from the welfare state. Kenworthy's other graph shows this: