Cathie Jo Martin and Alexander Hertel-Fernandez There seems to be an obvious solution to rising inequality: higher taxes. But there's an inconvenient fact here. The way most advanced, industrial countries have made real gains on inequality is through relatively regressive taxes that fund programs that reduce inequality. In fact, America's tax system is already unusually progressive by international standards. Our ongoing research suggests that this unusual relationship is not a coincidence. The countries in northern Europe that have made the biggest strides in reducing economic inequality do not fund their governments through soak-the-rich, steeply progressive taxes. Instead, they have broad-based taxes that ask all workers to contribute to a generous welfare state. Countries with highly progressive taxes that disproportionately hit the rich — like the United States — tend to have the stingiest welfare states. THE WAY A TAX SYSTEM FIGHTS INEQUALITY ISN'T JUST REDISTRIBUTION The figure below makes this point clearly, showing that the more progressive a country's taxes, the less the country does to reduce inequality. In this chart, redistributive effort refers to percent reduction in the market Gini coefficient — a useful measure of inequality. Household tax progressivity measures how much more (or less) of the tax burden falls on the wealthiest households, compared to households at the middle and the bottom. Both measures are from the OECD. There's a reason governments in nations with highly progressive taxes end up spending less to combat inequality — those taxes raise relatively little revenue for both economic and political reasons. For instance, the highly progressive taxes in the United States have fostered intense backlash from powerful economic elites, pushing high-earning individuals and firms to find loopholes and lobby for top-end cuts. The reason Northern European countries with more regressive taxes achieve such high levels of labor market equality, despite less progressive tax systems, is that they spend money on increasing the skills and earning power of low-end wage earners. Countries with the lowest levels of inequality have learned that policies to cultivate skills for all workers and to achieve full employment policies can accelerate economic growth while also reducing inequality. Large investments in human capital reduce societal conflicts over the distribution of resources, even while expanding the economic pie. RELYING ON THE WEALTHY TO FUND THE PUBLIC SECTOR WILL NOT CREATE ENOUGH REVENUE FOR LARGE-SCALE INITIATIVES TO REDUCE INEQUALITY Countries like Denmark and Sweden also redistribute income, but this largely occurs through the funding of egalitarian social benefits — public health care, education — that also contribute to a productive, healthy workforce. Whereas these countries raise most of their revenue in a relatively more regressive manner, they use this revenue to fund social benefits that improve both the living standards and productive capacities of lower-class residents. In contrast, countries with the most progressive tax systems, like the United States, tend to raise most of their revenue through levies on the wealthy and on capital, and end up investing little in job training and other social benefits that reduce inequality. The lesson for the United States is that relying on the wealthiest citizens and corporations to fund the public sector will not create the revenue necessary for large-scale initiatives to reduce inequality. Emphasizing redistribution as the central principle for tax policy is needlessly divisive, leads to smaller government revenues overall, and thus misses the positive benefits that having more revenues can offer if invested wisely in promoting success for all. In this, the Democrats, who've pledged to not raise taxes on people making less than $250,000 a year, are little better than the Republicans, with their no-new-taxes-ever pledge. The way a tax system fights inequality isn't just redistribution. It's by generating enough revenue to fund programs and benefits that help middle class, working class, and poor people participate and succeed in the economy. While talk of taxing top earners may make for good political rhetoric on the left, relying on such taxes cannot pay the bills.
Sweden, the best place to be poor, the worst place to be rich. How many times do I have to tell you? Eliminate means testing for all social programs. Very high personal flat tax.
Remember that Scandinavians countries are seen as the MODEL for Westerners. Some would go for Japan as a model for society, etc... Best place to be poor : what is wrong with the idea that no Scandinavian would have to be poor? Why do you love the idea of some people being poor?
%%%%%%%%%%%%%%%% You made a real good point about NOT raising taxes..... DB; and if some one is stupid enough to be a socialist slave, Sweeden may be one way to do it.Like IBD [investors business daily] says '' The idea that profits are a vice is a socialist idea-Winston Churchill, IBD. thanks
hey, it's just math man. 50% are poor/50% are rich. It's a real pisser when you are just barely making it and you test out at 51%. No problem, I support the flat tax, no means testing. Big change for me, after having been previously highly in support of progressive rates. Due to my belief that a young couple just starting out shouldn't be taxed because you want to fight a war someplace. But I will go for a very high flat personal tax, if you will give the 500 companies I own a free tax break. Like 0%.
Can you give me a citation to the original article. I think the conclusions drawn by the article are incorrect. I'm looking at the OECD site right now.
The article by Cathie Jo Martin and Alexander Hertel-Fernandez, which originally appeared here: http://www.vox.com/2014/10/8/6946565/progressive-taxes-are-not-the-solution-to-inequality , is among the most illogical I have ever come across. It is not supported by anything coming out of the OECD, though I suppose the authors tried to impart legitimacy to their nonsense by quoting OECD measures. The article is actually quite absurd! I was planned to write a detailed critique of the Martin-Fernandez article, but I found all of my main points have already been made here: http://franklycurious.com/wp/2014/10/10/taxing-the-rich-less-is-not-the-solution-to-inequality/
Someone please tell me why "Equality" is an objective any nation would strive for. Please tell me why I would spend time developing new ideas if I knew I would gain nothing for them. Be specific. Tell me why I would sacrifice my time and personal capital, only to have my gains re-distributed in the name of "Equality". Be specific. Tell me why I would care to better the condition of mankind if there is nothing there for me. Please be specific.