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Timothy Taylor has a must-read post. (I could say that almost every day, but today I am going to provide additional commentary.) It's long, but here is a brief excerpt.

On the tax side, the U.S. tax code is already highly progressive compared with these other countries...This finding is surprising to a lot of Americans, who have a sort of instinctive feeling that Europeans must be taxing the rich far more heavily. But remember that European countries rely much more on value-added taxes (a sort of national sales tax collected from producers) and on high energy taxes. They also often have very high payroll taxes to finance retirement programs. These kinds of taxes place a heavier burden on those with lower incomes.

Taylor goes on to point out that it is on the benefits side that America is less redistributive. We give relatively more to the elderly non-poor and relatively less to the non-elderly poor. In some sense, the goals of maintaining entitlement programs as they are and redistributing income to the poor are in conflict. I do not expect anyone on the left to see it that way, of course.

In fact, Megan McArdle reminds us that we tax the poor at high marginal rates by phasing out benefits at low levels of income.

A couple of days ago, I referred to the fact that poor people face some of the highest marginal tax rates in America. I received several emails from economics professors, gently correcting me: they face all the highest marginal tax rates in America. Because they lose benefits and tax credits, it can actually cost them money to get better jobs.

I am in the process of writing an essay about the need for a government reorganization, in order to make the executive branch leaner and more effective. One example of "more effective" would be to have a single agency that deals with economic opportunity to oversee the various redistribution programs, identify problems with high implicit marginal tax rates, and make recommendations for changes. As it stands now, different agencies deal with housing, food stamps, education, and various other programs that address economic opportunity. The resulting waste and inefficiency is a problem.

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CATEGORIES: Income Distribution

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The author at Roth & Company, P.C. in a related article titled If taxing the rich increased equality, the U.S. would be more egalitarian than Europe writes:

Equality is overrated. There's a lot of equality in North Korea because (almost) everyone is very poor, and even for... [Tracked on December 19, 2011 12:31 PM]

COMMENTS (4 to date)

Latest Comment

jc writes:

Here are two pictures I show people from time to time. They're usually quite surprised.

And Megan's post immediately reminded me of an old Mankiw post. Here's the associated figure for that one:

Posted December 17, 2011 11:46 AM

Brandon Berg writes:

It's worth noting, because most people don't get this immediately, that the high implicit marginal tax rates faced by the poor are a problem of incentives, not a problem of the poor being burdened too heavily by the tax system. In fact, they aren't burdened at all by the tax system; they're getting free stuff from it. It's just that they sometimes get much less free stuff when they earn more money.

Posted December 17, 2011 10:24 PM

tom heppner writes:

the current system of equal opportunity set up in America is nonexistent. generally, the rich get richer while the poor get poorer, regardless of political standpoint. our government focuses on the businessman and his interests far more than the common man. 6 members of the Walton family, the family that created Wal-Mart, have separately and consecutively made the Forbes 400 Fortune list for several years running. if you were to add their total net worth, it would sum to a total greater than the entire bottom 30% of our population in the US. its clear where our nation's priorities lie. the corporate tax in America ranges from 15-35%; however, it is only enforced on a margin from 2-8%, and many times, corporations find ways to evade the tax entirely, either through loopholes or having lobbyists in congress. no matter what happens in the future, this cannot continue to happen. with a focus change from big business to the citizen, we would have more incentive to work for ourselves and others, making the US much more productive than it is now.

Posted December 18, 2011 5:11 AM

Peter writes:

"I am in the process of writing an essay about the need for a government reorganization, in order to make the executive branch leaner and more effective."

Just in time as president Obama and family go on a $4 million 17 day vacation.

Posted December 19, 2011 11:48 AM

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