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Friday, Feb 17, 2012, 4:03 pm

Are America’s Taxes More Progressive Than Europe’s?

By Daniel Hertz

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A recent online spat between Jonathan Chait of New York Magazine and Veronique de Rugy, a research fellow at George Mason University, has illuminated a corner of public policy that’s usually concealed by the dark shadows of ideological battle.

It all started when de Rugy wrote a column arguing that, compared to other wealthy countries, the United States actually has a relatively progressive tax system. Chait, having spotted a flaw in her logic (she suggests that the U.S. is more progressive because the rich pay a higher proportion of all taxes, but that’s partly because they earn a higher proportion of all income), jumped on the opportunity.

After several rounds of accusations of stupidity (by Chait) and meanness (by de Rugy), a political scientist at The Monkey Cage showed up to settle the dispute in an unusually interesting way.

So does the U.S. have an especially progressive tax system? Unsurprisingly, it depends what you consider "progressive." In terms of the relationship between the taxes you pay and the amount of money you make, the answer is actually yes: the overall tax rate in America rises more steeply as you ascend the income ladder than it does in most other wealthy countries. That’s largely because European countries tend to rely heavily on sales taxes, which are heavily regressive.

(It should be noted, though, that this doesn’t change the fact that the very, very, very wealthiest—the top 0.01%, say—manage to skate by with very low tax rates.)

Does this mean the entire thesis of the 99% and the 1% is a fraud--that we're actually making good in comparison with our European counterparts? In a word, no. Although the tax system is more progressive, when you look at how government redistributes wealth—that is, whether the net effect of all of our policies is to provide greater resources to people at the bottom of the economic ladder—we are once again the worst among our peer countries.

There is, though, a lesson for us: namely, that the people who have been saying that raising taxes on the rich won’t suffice to build a robust social safety net are right. It turns out that the total amount of taxes, rather than their progressivity, is by far the most important factor in how redistributive governments are. In other words, the Buffett Rule won’t save us. These facts suggest that finding ways to raise more money from a broader tax base, and working to make the spending we already do more directed at the people who really need, is what’s really going to make a difference for America’s suffering middle-, working-, and unemployed classes.

Daniel Hertz is a senior fellow at City Observatory, an urban public policy think tank.

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