• Forecast
  • News Tip
  • Categories
Temperature Precipitation
Estimated read time
2m 43s

If U.S. taxes are so progressive, why the inequality gap?

By Aimee Picchi/CBS News 1:02 PM May 13, 2014

In the debate over America’s increasing income inequality, some of the rhetoric has focused on the country’s tax system, with calls for heftier burdens placed on the country’s wealthiest. Heck, even millionaires say they and their cohorts should face higher taxes.

That’s prompted some critics to point to a 2008 report from the Organisation for Economic Co-operation and Development, which stated that the U.S. has the most progressive tax system among developed countries. Therefore, some conservative groups such as the American Enterprise Institute have argued, America is already addressing inequality and should be held up as a “redistributive paradise.”

Not so fast, argues the Center on Budget and Policy Priorities in a report issued Monday. Some of the analyses are “cherry picking” and distorting the OECD’s findings, the report’s authors argue, noting that the conclusions aren’t as rosy as some would like to think. Instead, the American system of taxes and cash transfers — such as Social Security payments — are doing less to reduce inequality than almost any other OECD country, despite the country’s progressive tax.

So how does that work? After all, if a country’s tax system taxes wealthy people at higher levels than the poor, shouldn’t that help to narrow income inequality?

There are two big issues with the U.S. system that are actually putting it behind other developed countries, the Center for Budget and Policy Priorities reports.

“The answer is that tax progressivity by itself gives an incomplete picture of how much taxes and cash transfers reduce inequality,” authors Chye-Ching Huang and Nathaniel Frentz wrote.

First of all, the overall amount raised by taxes directly impacts how a country can address inequality: The less money raised through taxes, the fewer resources a country has to redirect those funds to lower-income families, for example. And taxes in the U.S., despite its progressive policies, represent a smaller share of household income (about 26 percent) than in the average OECD country (at about 29 percent, excluding the U.S.)

Secondly, the U.S. spends less on cash transfers — at about 9 percent of household cash disposable income — than almost any other country in the OECD, and about half as much as the OECD country average of 22 percent.

“As a result, while U.S. income and employee payroll taxes were the most progressive in the OECD, they were only the fourth most effective in reducing income inequality,” the report notes.

Regardless of interpretation, the fact remains that inequality is growing in the U.S., as well as other developed countries. The top 1 percent of Americans now take home 20 percent of all pre-tax income in the country, or double their share in 1980, the OECD reported earlier this month.

And despite higher taxes as a percentage of GDP in countries such as Denmark and Germany, inequality is also rising in those countries, albeit at a slower rate than in in the U.S.

© 2014 CBS Interactive Inc.. All Rights Reserved.

Latest Stories

  • Cancer Bites: Helping cancer patients get the nutrition they need

    by Daybreak Staff on Oct 25, 10:58

    One of the biggest struggles for cancer patients is finding an appetite, as many patients just aren’t hungry. Starting this week, a free cooking series called Cancer Bites kicks off in an effort to help patients get the nutrition and strength they need to battle cancer. It’s being put on by Anchorage and Valley Radiation Therapy Centers. […]

  • News

    Anchorage police respond to vehicle versus pedestrian hit-and-run

    by KTVA CBS 11 News on Oct 25, 9:13

    The Anchorage Police Department (APD) is asking for help locating the driver of a sedan involved in a midtown Anchorage hit-and-run. According to APD, the collision was reported at 8:53 a.m., at A Street and Benson Boulevard. The vehicle ran a red light and struck the pedestrian, who had the right of way, police said. […]

  • APD: Robbers hit 2 Holiday Gas Stations

    by KTVA CBS 11 News on Oct 25, 7:50

    Two early morning robberies at Anchorage Holiday Gas Stations are under investigation. The first robbery took place a 5:30 a.m. Tuesday at a gas station on Huffman Road, according to a release from the Anchorage Police Department (APD). Police were told two armed males, wearing black clothing and masks, entered the store with guns and demanded money, […]

  • News

    Alaska looks to boost employment with grant money

    by Associated Press on Oct 25, 6:52

    ANCHORAGE, Alaska (AP) – The state of Alaska has received a $1 million grant to help bolster local employment within the state’s health care and aviation industries. The Alaska Public Radio Network reports (http://bit.ly/2dR6RKw ) the U.S. Department of Labor grant will support apprenticeship programs, which the state hopes will encourage more companies to hire […]

  • Police identify man killed in Government Hill homicide

    by KTVA CBS 11 News on Oct 25, 0:25

    Last updated at 10:10 a.m. on Tuesday, Oct. 25 The Anchorage Police Department (APD) has released the identity of a 29-year-old man who was shot and killed in Government Hill, late-Monday night, as Ian Alex Bobich. Bobich’s next of kin has been notified. In an updated release from police Tuesday morning, the agency said no […]

  • APD: Man remains in critical condition after late-night Holiday shooting

    by KTVA CBS 11 News on Oct 24, 23:23

    Last updated at 10:18 a.m. on Tuesday, Oct. 25 The Anchorage Police Department has interviewed the man who shot and critically injured another man outside of a Holiday Gas Station on Lake Otis Parkway, near East 68th Avenue, but police have not pressed charges, the department said. In an update from the department Tuesday morning, […]

  • News

    Napaskiak celebrates opening its new school with the hope for a stronger community

    by Anna Rose MacArthur/KYUK on Oct 24, 22:11

    This story originated from KYUK Public Media and was republished with permission. BETHEL — In rural Alaska villages, the school is often the center of community life. It’s not only the place where children go day after day to learn, play sports, and make friends. It’s where the community comes together for daily activities such as open […]

  • News

    Parents depend on Camp Fire to fill childcare void

    by Heather Hintze on Oct 24, 21:55

    Before the bell rang for morning classes at Rogers Park Elementary School, third-grader Sabrina Mason had already been at school for an hour. She’s the fourth and final kid in her family to attend the Camp Fire before-school program. “I like that I get to hang out with friends that aren’t in my class and […]