• 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

  • Lifestyle

    Can breakfast help keep us thin? Nutrition science is tricky.

    by Associated Press on Jan 21, 18:45

    Cereal makers have happily encouraged the belief that eating breakfast can help keep us thin and bring other benefits, partly by paying for studies that seem to support the idea. So, does that mean breakfast is bad for you? Not that either. What it does show is how difficult it can be to sort the […]

  • Lifestyle

    Funding for opioid overdose kits offers ‘hope’ for Alaska’s drug epidemic

    by Johanna Eurich / KYUK on Jan 21, 18:30

    The state government is gearing up for a major battle against the opioid epidemic sweeping through Alaska, according to a report published by KYUK Public Media. Andy Jones, the section chief for the state Department of Health and Social Services, is heading up a new, statewide program to get the drug Naloxone, also known by […]

  • Politics

    Women’s March on Washington draws hundreds of thousands to nation’s capital

    by CBS/AP on Jan 21, 18:22

    Wearing pink, pointy-eared “pussyhats” to mock the new president, hundreds of thousands of women massed in the nation’s capital and cities around the globe Saturday to send Donald Trump an emphatic message that they won’t let his agenda go unchallenged over the next four years. As night fell on the East Coast, thousands of protesters […]

  • News

    Turkey fryer blamed for Colony Loop house fire

    by KTVA CBS 11 News on Jan 21, 18:13

    Slick, snowy roads made it difficult for emergency personnel to respond to a house fire Saturday. Shortly before 2 p.m., the Anchorage Fire Department issued a statement that 15 units had been dispatched to a home on the 2400 block of Colony Loop, where the fire was reported. According to firefighters at the scene, the […]

  • News

    Heavy snowfall causes Dome roof to bow

    by KTVA CBS 11 News on Jan 21, 17:02

    Events at The Dome were canceled Saturday afternoon when heavy snowfall caused the roof to bow. “The snow load is causing some slight depression in the roof, and we’re working to remove the snow from the top of the facility,” explained Mike Martin, chairman of the facility’s board. The Dome, located at 6501 Changepoint Drive, […]

  • News

    PHOTOS: Women’s March on Alaska

    by KTVA CBS 11 News on Jan 21, 16:01

    While thousands of men and women attended the Women’s March on Washington, thousands more took to the streets in sister marches across Alaska. With a new president in the White House, many have wondered what new laws will be enacted and what laws would be repealed, such as the Affordable Care Act. The marches were a way […]

  • APD investigates homicide of 17-year-old boy shot in the back

    by KTVA CBS 11 News on Jan 21, 16:01

    A 17-year-old boy died Saturday after he was shot in the back in Government Hill, Anchorage police said. The boy was found in the roadway on the 700 block of Birch Street just after midnight, police said in a statement. The boy was taken to a nearby hospital alive, but he later died there from […]

  • News

    APD urges public to be aware of winter conditions following 2 possible cold exposure cases

    by KTVA CBS 11 News on Jan 21, 15:13

    Last updated at 8:30 p.m. on Saturday, Jan. 21 The Anchorage Police Department says one person’s death Saturday may likely be the result of exposure. A second person was later found with similar symptoms, and has also died. The first victim’s death was reported Saturday morning after a male’s body was found outside near the intersection […]