The United States “has the most progressive tax system in the developed world,” says economist Adam Michel:
The United States places an unusually heavy share of the tax burden on higher earners. You wouldn’t know this from hearing some politicians claim that the rich escape next to tax-free or deserve to be taxed at higher rates. In reality, the data show the opposite. The most recent example is a study by the Fraser Institute, which shows the US ranks first out of 33 developed countries as having the most progressive tax system.
Progressive tax systems, where tax rates and tax shares increase with income, are often idealized by big-government redistributionists, but they come with trade-offs. As tax systems become more progressive, they make each additional hour of work or investment less rewarding, weakening incentives to work longer hours, take entrepreneurial risks, start new ventures, or invest in continuing education. Over time, these effects compound, slowing economic progress and material well-being for everyone. Highly progressive tax systems are also more volatile revenue sources, unfairly treat similar citizens in vastly different ways, encourage avoidance and evasion, and increase administrative complexity.
The Fraser Institute authors construct an index of five measures of a tax system’s progressivity, capturing differences between the top and bottom income tax rates, the top bracket threshold and personal exemptions as a share of the average wage, the income tax share of total revenue, and the consumption tax share of total revenue. The final index, summarized in Figure 1, ranks countries from 0 to 10, with 10 being the most progressive tax system.
More at this link: https://www.cato.org/blog/united-states-has-most-progressive-tax-system-developed-world
In other news, the low-income housing tax credit (LIHTC) drives cost inflation in “affordable” housing projects, while costing taxpayers $14 billion per year, explains a news article in the Washington Post. This echoes what economists have been saying for years.
As Cato Institute economist Adam Michel explains, the low-income housing tax credit “inflates construction costs, crowds out market-based development, and funnels most of its benefits to investors and developers instead of renters….Complexity. The LIHTC has spawned a compliance industry of lawyers, accountants, and consultants. The statute, IRS regulations, and compliance guides span more than 2,000 pages, entailing huge bureaucratic overhead….Fraud and corruption. With minimal oversight, the program is ripe for abuse. Because state and local officials have discretion in awarding credits, it has been associated with numerous scandals involving public officials and politically connected developers. Doesn’t help renters. Statistical studies suggest that as much as two-thirds of LIHTC benefits are captured by investors and developers…Crowd out. Rather than expanding the overall housing supply, LIHTC projects often displace or delay private construction that would have happened anyway, adding costs without adding new housing units.”
