• 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

  • News

    Anchorage Fire Department holds deep-fried turkey safety demo

    by KTVA CBS 11 News on Nov 23, 13:30

    Thanksgiving is around the corner. For many residents, deep-fried turkey is on the planned menu. Anchorage Fire Department battalion chief Mark Hall says deep fryer fires are responsible for about $15 million in damage to homes. Hall and other firefighters from the department held a demonstration Saturday of what could happen if deep frying a […]

  • News

    Downtown street party, multiple shootings overnight keep Anchorage police busy

    by KTVA CBS 11 News on Nov 23, 12:00

    Anchorage police responded to multiple incidents early Sunday morning, including an unruly street party and two isolated shootings. Downtown street party The first occurred at around 2:30 a.m., according to a release from the Anchorage Police Department. Police responded to a call that shots had been fired in the downtown area. Officers discovered a crowd […]

  • News

    UAF computer science students seek software proposals

    by Associated Press on Nov 23, 10:45

    Computer science students at the University of Alaska Fairbanks are looking for software design proposals as part of their learning process. UAF officials say the projects allow public service and private organizations, as well as governments, to get free software while students get experience. Officials say more than 65 successful projects have been developed by […]

  • News

    Diversity a theme at Walker transition conference in Anchorage

    by Shannon Ballard on Nov 22, 18:42

    It would be easy to have a closed-door discussion about the critical issues that face Alaska, but Gov.-elect Bill Walker says the conversation should belong to all Alaskans. “We get the best input the more people we have involved in the process,” said Walker. There is some risk associated with doing that. The bigger risk […]

  • Weather

    Evening News weather, Nov. 22

    by KTVA Weather on Nov 22, 18:20

    Clouds have invaded our space for the weekend with little moisture here in the Anchorage area. Daytime highs remain in the mid 30s with light winds as we head into Saturday night. Sunday brings more of the same conditions with increasing clouds across the Bowl. We’ll remain under this dry spell going into Thanksgiving. Sunshine […]

  • Sports

    UAA volleyball signs 2 Dimond players

    by KTVA Sports on Nov 22, 18:02

    A pair of Dimond Lynx are heading to the level of volleyball, but the trip is a short one.

  • News

    Government Hill gives back, continues holiday tradition for one resident

    by KTVA CBS 11 News on Nov 22, 17:02

      Putting up Christmas lights and decorations is a holiday tradition for Government Hill resident Jeff Fowler. “It started when we lived on the south end of town,” said Fowler. “One at a time, started buying them and when we moved here, new and more stuff just started showing up.“ Over the years, the grand […]

  • News

    Obama highlights Sitka School District’s efforts in technology

    by KTVA CBS 11 News on Nov 22, 13:00

    This week, the Sitka School District got a shout-out from President Barack Obama. Superintendent of Sitka Schools Mary Wegner was in Washington, D.C. on Wednesday, joining more than 100 superintendents from across the country gathered together at the White House for the ConnectED to the Future conference. The day-long event recognized some of the nation’s […]