Summary - while the upper 10% of Americans have a greater share of the national income than in many other countries, they also pay a significantly larger share of the income and payroll taxes. (Yes, that includes SS.)
Method - find share of income. Find share of taxes. Divide latter by former. In all but a few countries, that ratio is >1. The US ratio is 1.35, the highest. Next comes Australia, at 1.29, the Netherlands at 1.28, and Ireland at 1.26. No other country's ratio is over 1.2.
Sweden's ratio is 1 while Norway's ratio is 0.95. Yes, you read that correctly - their income/payroll taxes are NOT progressive wrt the top 10%.
Me - I don't care what someone else has, aka envy. I care what I have, aka greed.
I agree with your analysis but I think you missed the fact that al ot of other countries tax spending through VAT rather than income. I'm not saying this is a better system (I don't think it is...). For instance, the standard VAT in Norway is 25% (14% for food and drink) so the slack is being taken up (in a big way) somewhere else.
I also don't care if there is a large income disparity. All the remedies I've seen proposed to fix this "problem" essentially just raise taxes on top earners. I can't think of a worse place for that money than in the hands of a politician.
> I agree with your analysis but I think you missed the fact that al ot of other countries tax spending through VAT rather than income.
Sales taxes and VAT makes the US even more progressive in comparison because the rich spend a smaller fraction of their income on VAT-taxed things.
For example, Bill Gates spends maybe 5x as much as me on dinner yet we both pay the same tax rate on said dinner. His "dinner budget" is in the noise in his budget. Mine isn't.
Luxury item taxes are in the noise for him so the fact that I don't pay them doesn't make a significant difference wrt progressiveness.
> All the remedies I've seen proposed to fix this "problem" essentially just raise taxes on top earners. I can't think of a worse place for that money than in the hands of a politician.
There are two other problems with too much progressivity.
(1) govt revenue becomes extremely volatile. Rich people tend to have more volatile incomes, so when they take a hit, anyone dependent on them takes a hit.
(2) Rich people have more choices in how and when they recognize income.
WRT (2), CA has a fair number of people who get rich on paper, move out of the state, and then turn their wealth into cash. Since the latter is the taxable event, CA loses.
I don't care what someone else has, aka envy. I care what I have, aka greed.
Well said. As far as sins go, greed is much better than envy. Greed encourages you to earn more for yourself, which generally has positive externalities. Envy is satisfied just as well by destroying the wealth of others.
I don't think this is a good measure of how "progessive" a tax system is, at least when a progressive tax structure means that those in higher income brackets pay a higher percentage of their individual incomes in taxes.
A higher ratio doesn't indicate that a country's tax structure is more progressive; it indicates that a country has greater income inequality.
Why? Because the wealthiest 10% paying a larger share of the total taxes is compatible with each of those wealthy individuals paying a relatively small individual percentage of their income in taxes (compared to their peers in other countries). This happens precisely when a country has a high level of income inequality and a relatively less progressive tax structure. In such countries, the richest own more of the wealth, giving a higher numerator; they pay a larger share of total taxes due to the fact that (in comparison to more equal countries) their incomes are much higher compared to the incomes of the other 90%; yet the richest 10% pay a lower percentage of their income relative to their peers in other countries because the tax system is less progressive than in other countries.
So it's not correct to say that Sweden and Norway do not have progressive tax structures with respect to the richest 10%, while the U.S. does. Norway's top tax rate is 47%; Sweden's is 59%; the U.S.'s is 35%, plus up to 10% in state income tax, for a max of 45%. [1]
> Me - I don't care what someone else has, aka envy. I care what I have, aka greed.
This attitude strikes me as naive. Much of "what you have" is only valuable relative to what others have. This is especially true of cash, but also true of illiquid goods that you value at least partly for their social function or status. Would driving a Porsche (say) be exactly as valuable to you whether or not everyone else had one? And if so, can you say that about everything you have and value?
Because the wealthiest 10% paying a larger share of the total taxes is compatible with each of those wealthy individuals paying a relatively small individual percentage of their income in taxes...
Did you read the linked article? It measures the ratio (% of taxes paid) / (% of income earned). In this US, this ratio is 1.35%. In Norway, it's 0.95. Inequality would increase the denominator, not the numerator. With a flat tax (at 35%, 47% or 59%), this ratio would always be 1.
Perhaps you are confusing overall tax burden (taxation levels) with progressivity (the derivative of tax rate w.r.t. income)?
As for positional/signalling goods/status (e.g., a Porsche that no one else owns), they are always a zero sum game. There is no avoiding this. The most you can do is equalize incomes and allow status to be unequally distributed via other mechanisms (good looks, athletic ability).
> Did you read the linked article? It measures the ratio (% of taxes paid) / (% of income earned). In this US, this ratio is 1.35%. In Norway, it's 0.95. Inequality would increase the denominator, not the numerator.
Right, sorry, I should have been more clear. Yes, inequality increases the denominator. But what I meant was that I would expect the numerator to grow faster than the denominator, at least some of the time, as both inequality and regressivity increase. So I would expect the ratio to be higher for some countries with higher inequality and relatively less progressive taxes (it seems likely that the U.S. is one example). Thus, one should not necessarily understand a higher ratio as indicating a more progressive tax system, which is what the original commenter was claiming.
But what I meant was that I would expect the numerator to grow faster than the denominator, at least some of the time, as both inequality and regressivity increase.
Not possible. Define P = progressivity index = tax rate for top 10% / tax rate for bottom 90%. Define R = income of the top 10%, B = income of the bottom 90%, and inequality I = R/B. Tax paid by the rich = RP x tax rate for bottom 90%.
% of taxes paid by rich = RP / (RP+B) = IP/(IP+1). (Tax rate for bottom 90% factors out)
(% tax paid by rich) / (% income earned by rich) = [IP/(IP+1)] [(R+B)/R] = P(I+1)/(IP+1)
Simple calculus shows this quantity always increases with increasing P and decreases with increasing I. So a higher ratio implies either a) a more progressive tax system or b) less inequality.
> This attitude strikes me as naive. Much of "what you have" is only valuable relative to what others have.
Not at all. The pleasure that I get from a trip to Mexico is not affected by whether someone else can go Fiji. The benefit that I get from owning a house in San Jose has nothing to do with the cost of Bill Gates' mansion. The fun that I have driving my car isn't affected by the amount of money that Larry Ellison spends on boats.
> This is especially true of cash
Actually, it's the least true of cash.
> but also true of illiquid goods that you value at least partly for their social function or status.
There's your problem - you're assuming that I care about what other people have after I explicitly said that I don't.
As Feynman said, why do you care what other people think?
Or rather, if you do, isn't that your problem? Why should that problem justify doing anything to other people?
> Would driving a Porsche (say) be exactly as valuable to you whether or not everyone else had one?
Absolutely, Except that I want a Jaguar, not a Porsche.
Summary - while the upper 10% of Americans have a greater share of the national income than in many other countries, they also pay a significantly larger share of the income and payroll taxes. (Yes, that includes SS.)
Method - find share of income. Find share of taxes. Divide latter by former. In all but a few countries, that ratio is >1. The US ratio is 1.35, the highest. Next comes Australia, at 1.29, the Netherlands at 1.28, and Ireland at 1.26. No other country's ratio is over 1.2.
Sweden's ratio is 1 while Norway's ratio is 0.95. Yes, you read that correctly - their income/payroll taxes are NOT progressive wrt the top 10%.
Me - I don't care what someone else has, aka envy. I care what I have, aka greed.