progressive fiscal policy

Don’t Soak the Rich by Edoward D. Kleinbard

Our peer countries typically rely on large, regressive tax systems to mitigate income inequality far more than we do. For example, I compared Germany and the United States, using 2007 data (the last year unaffected by the Great Recession) collected by the Organization for Economic Cooperation and Development. The two countries had virtually equivalent levels of income inequality. Moreover, the American tax system as a whole was quite progressive, while Germany’s actually was regressive. 

Nonetheless, the American fiscal system as whole (including state and local government spending) reduced inequality in market income — that is, income before subtracting taxes and adding back government benefits — by only 22 percent, while Germany’s reduced it by 41 percent. The reason is that the German fiscal system was significantly larger in overall terms: Taxes accounted for about 36 percent of German gross domestic product, against 28 percent for the United States. It’s the spending side, not the taxes, that makes the difference.

Book Review: Edward Kleinbard’s “We Are Better Than This.” by Jared Bernstein