An Uncomfortable Fact About Taxes: The Rich Do Pay Their Fair Share

Posted: Dec 29, 2011 11:39 AM
There's been a lot of consternation about the U.S. status as a "low-tax nation" in anticipation of serious debates about the debt and deficit. As far as taxes as a percentage of GDP go, the U.S. is relatively low-tax compared to developed European nations. However, the discrepancy doesn't come from a lack of taxes on the rich - it's that the U.S. taxes everyone else at pretty spectacularly low rates.

The primary driver of this is that the U.S. doesn't have a VAT or some other form of consumption tax that generally raises a higher percentage of income from people who don't have the luxury of being able to save and invest.

Clive Crook writes,

A new report by the Organization for Economic Cooperation and Development shows that in the middle of the last decade -- i.e., after the Bush tax cuts were introduced -- the U.S. income tax was about as strongly redistributive as income taxes in Canada, Denmark, Finland, the Netherlands and Sweden. You might have noticed that the CBO report on top incomes was widely quoted, but one finding got less attention: Between 1979 and 2007, “the federal individual income tax became slightly more progressive.”

The awkward truth is that the U.S. income tax system is anomalous not because it taxes the rich lightly but because it taxes everybody else lightly... it’s wrong to say that the U.S. tax system has been rigged in favor of the rich.

This is a truth that Democrats who think that many problems could be solved simply by raising taxes on the rich need to grapple with. The way that other countries finance their large welfare states is not by gouging upper-income-earners, it's by heavily taxing the middle class.

This is a point I've made before. Despite calls for higher taxes on the rich, the U.S. tax code is already remarkably progressive. To take the U.S. from its current tax state to a European place, they'll need to raise a substantial amount of taxes from people no politician wants to touch.

The fact about taxes in the United States is that the rich do pay their "fair share," unless "fair" is defined as a tax burden that doesn't exist anywhere in the world.