• 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

    Alaska Federation of Natives Convention Day 2: Courting the Native vote

    by Rhonda McBride on Oct 24, 23:31

    Candidates have traditionally courted the Alaska Native vote at the Alaska Federation of Natives convention. But this election-season ritual has reached a fever pitch this year. Some of that could be due to the formation of the Unity ticket; the merged campaigns of Bill Walker, who was running as an independent candidate for governor, and […]

  • News

    Steese Highway collision kills 1

    by KTVA CBS 11 News on Oct 24, 23:00

    One person is dead and another injured following a head-on crash outside Fairbanks Friday night, Alaska State Troopers said. The collision on the Steese Highway near Hagelbarger Avenue was reported to troopers in Fairbanks just before 7:15 p.m., according to an AST dispatch. One person was seriously injured and later succumbed to their injuries, troopers […]

  • News

    South Anchorage crash injures 1, temporarily closes highway

    by KTVA CBS 11 News on Oct 24, 22:15

    Both lanes of the Seward Highway were closed for more than two hours Friday evening following a two-vehicle collision that left one person hospitalized. According to the Anchorage Police Department, the crash happened just after 5:30 p.m. near the highway’s intersection with O’Malley Road. A vehicle heading north crossed the median and hit another vehicle […]

  • Weather

    Evening News weather, Oct. 24

    by KTVA Weather on Oct 24, 19:58

     

  • News

    Dam expansion increases Sitka’s power production

    by Heather Hintze on Oct 24, 19:44

    The Blue Lake Project in Sitka is set to dramatically increase the production of hydroelectricity for the city. Five miles out of town, up a one-lane dirt road, tucked into the mountains, construction crews work on the expansion in the windy canyon. The project is so massive it takes Alaska’s largest, 600-ton crane to make […]

  • News

    Anchorage mom loses boxing match, still wins big

    by Lauren Maxwell on Oct 24, 19:18

    Maria Edwards had never boxed before she got in the ring Thursday night at the Egan Center. But she had a good reason for taking part in Anchorage’s Thursday Night Fights: She was trying to earn enough cash to afford gymnastic lessons for her 3-year-old son. Edwards had her eye on the prize money, $50 […]

  • News

    Complaints lead to towing ordinance update

    by Bonney Bowman on Oct 24, 18:46

    Anchorage residents who are angry over inconsistent and often exorbitant towing fees may soon see some relief. The Anchorage Assembly discussed a proposed amendment to the municipal towing ordinance Friday. The amendment would cap the price of non-consensual tows, such as when cars are towed from private lots, at $225. It also prevents towing companies from […]

  • News

    Assembly debates software program audit

    by Bonney Bowman on Oct 24, 18:06

    Anchorage Assembly members met Friday to discuss how to best move forward with the municipality’s troubled software overhaul. Members debated conducting an independent audit of the SAP program, which is designed to automate many aspects of government, including payroll. But the program is three years overdue and more than $20 million over budget. Assembly members […]