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Happy tax day, America! You have the most progressive tax structure in the world.

| April 17, 2012

Thanks to the always-eloquent Veronique de Rugy for pointing me toward this 2008 study produced by the OECD which estimates the progressivity of tax systems in 24 industrialized countries. The study develops two separate indices to measure tax progressivity. One lists the U.S. as having the most progressive tax structure in the world and the other lists the U.S. second, just behind Ireland.

“But wait,” you say, “top marginal tax rates for personal income taxes are lower in the U.S. than elsewhere in the OECD!” True, but top marginal tax income tax rates in the U.S. only apply to the very wealthy. Throughout Europe, much of the middle class is subject to the top marginal tax rates. As de Rugy explains, the top U.S. tax rate of 35 percent only applies to those making over $379,000. In France–the presumed “model” welfare state–the top rate of 41 percent applies to anyone making over $91,000.

The U.S. tax code also relies much more heavily on the progressive income tax and taxes on capital accumulation (e.g. capital gains taxes and taxes on dividends). Although European leaders are often stymied by inflexible labor market strictures, they at least recognize the economic destruction that is wrought when governments penalize saving and investment with capital gains taxes and the like.

Instead, most developed nations rely more heavily on consumption taxes, including the value-added tax (VAT).

Also, leaders in other OECD nations have resisted creating tax “loopholes” that decrease the value of work relative to liesure by paying individuals not to work. The U.S., by contrast, has a host of exemptions for low-income households and tax credits like the earned income credit that help render the U.S. tax code more progressive than those of other advanced nations.

So, according to the OECD, the U.S. redistributes wealth at a faster pace than any other advanced nation on Earth.

Happy tax day, America! Premier Khrushchev would be proud!

Or…perhaps I should say, “Премьер Хрущев мог бы гордиться!”

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Geoffrey Lawrence is director of research at Nevada Policy. Lawrence has broad experience as a financial executive in the public and private sectors and as a think tank analyst. Lawrence has been Chief Financial Officer of several growth-stage and publicly traded manufacturing companies and managed all financial reporting, internal control, and external compliance efforts with regulatory agencies including the U.S. Securities and Exchange Commission.  Lawrence has also served as the senior appointee to the Nevada State Controller’s Office, where he oversaw the state’s external financial reporting, covering nearly $10 billion in annual transactions. During each year of Lawrence’s tenure, the state received the Certificate of Achievement for Excellence in Financial Reporting Award from the Government Finance Officers’ Association. From 2008 to 2014, Lawrence was director of research and legislative affairs at Nevada Policy and helped the institute develop its platform of ideas to advance and defend a free society.  Lawrence has also written for the Cato Institute and the Heritage Foundation, with particular expertise in state budgets and labor economics.  He was delighted at the opportunity to return to Nevada Policy in 2022 while concurrently serving as research director at the Reason Foundation. Lawrence holds an M.A. in international economics from American University in Washington, D.C., an M.S. and a B.S. in accounting from Western Governors University, and a B.A. in international relations from the University of North Carolina at Pembroke.  He lives in Las Vegas with his beautiful wife, Jenna, and their two kids, Carson Hayek and Sage Aynne.

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