U.S. Tax Code Is One of World’s Most Progressive

Writing in The Washington Times, Cato Institute Senior Fellow Richard Rahn explains that the United States tax code is one of the most progressive in the world. Over the past 30 years it has actually become much more progressive.

  • The top 1 percent of taxpayers pay 38 percent of all the income taxes despite having just 20 percent of the income.
  • The top 10 percent of taxpayers pay 70 percent of the income tax while having just 46 percent of the income.
  • At the other end, the bottom 50 percent of taxpayers pay just 2.7 percent of the income tax while having 13 percent of the income.

According to Rahn, this has increased government spending:

This has resulted in a situation in which a relatively small minority of taxpayers pay the bulk of the taxes, while most American pay little or no income tax.  This is causing an increasing disconnect between benefits from government and what most citizens pay for.  One result is a greater polarization in the political realm where a majority of citizens increasingly demand more government benefits for which they want others to pay.

Reversing course and making the tax code less progressive would temper demand for new government services when people realize they will have to pay for those services through higher taxes.

Comments (18)

Trackback URL | Comments RSS Feed

  1. Rick says:


    Have you seen this piece? It allegedly refutes this claim. refute this


  2. Rick says:

    Sorry, the last “refute this” was an error, not a challenge. But I hope you do.

  3. Devon Herrick says:


    The link is an interesting — if not misguided article. It asserts incomes of the bottom 90 percentile of the income distribution grew faster than the top 1% from 1950 to 1980. For the period 1980 to 2008, the top 1 percentile of the income distribution grew while the bottom 90% stayed about the same. The article was counting 1950 to 1980 as the pre-Reaganomics era. I see several problems with this analysis.

    In 1950 the industrial base in America was growing rapidly as war-torn Europe and Japan rebuilt. The Baby Boom generation stimulated demand. There was also latent demand left over from the Great Depression and World War II. The U.S. had few trade competitors. Unions were much stronger and trade protectionism was common. Most manufacturing jobs required little formal education. There was also a labor shortage compared to capital. These conditions are a recipe for rapid income growth among blue collar workers.
    At the same time, the top marginal tax rates were rather high. As a result, the rich took more of their income in the form of long term capital gains and as tax deductible benefits (when tax rates where high, tax deductions were rather liberal).
    The period from 1980 to 2008 was a period of de-industrialization and loss of manufacturing jobs that were replaced by service sector jobs. Trade barriers were lowered (because they are unsustainable). Semi-skilled workers had to compete with lower-paid workers abroad. Increasingly, a good job required formal training. A machinist, for example, ran a metal lathe that relied on lasers for measurement and computer programs to run it. Lower tax rates stimulated the economy (in recession and stagnation in the 1970s through early 1980s). The information age began around 1980 with widespread use of the Apply computer and IBM PC. Increasingly, income was accruing to the innovative, those with education and those in the new field of information systems.

  4. steve says:

    John- Have you thought about setting a new standard? How about becoming the first conservative writer who writes about taxes and includes all taxes? Rather than just focus on income taxes, please include payroll, state and local taxes.( Current federal revenue is almost equally derived from payroll taxes and income taxes.)

    My preference would be that we decrease tax expenditures, especially the child care credits and amending the EITC so that it is not so heavily tilted towards those with children. Those w/o children should not have to subsidize those with kids.

    “Reversing course and making the tax code less progressive would temper demand for new government services when people realize they will have to pay for those services through higher taxes.”

    The poor do not vote.


  5. steve says:

    ” Increasingly, income was accruing to the innovative, those with education and those in the new field of information systems.”

    IOW, fundamentals are more important than tax rates.


  6. John Goodman says:

    I would only add to the above that almost everyone who wirtes about the top 1%, writes as though they are the same people, even when making comparisons over decades. In fact the income of wealthy people fluctuates a lot. The longer the time period, the more the fluctuation. So The top 1%, say in 1960, are not the same people as the top 1%, say, in 2010 — or even 10 years later in 1970.

  7. Plac Ebo says:

    Imagine how skewed the wealth in America will be once the Republicans correct our unjust “progressive” tax code. They will not rest until the top 1% owns everything.

  8. Joe Barnett says:

    Rick (above) calls attention to where the president got this notion that “the average incomes of 90 percent of working Americans hasn’t risen over the past decade.” The first chart in this leftist analysis
    http://wweek.com/portland/print-article-17350-print.html shows some of what the problem is. Note that earned income of the lowest group didn’t rise much over last 3 decades. That’s because they get so much from the government, that, if they work, they would face an effective marginal tax rate of more than 100 percent. They have responded accordingly. As to the share that the rising real average incomes of all the groups show: like all income distributions, these are households, not individuals. One wage earner supporting 2 kids is always going to be near the bottom, while plenty of 2-earner households are allegedly rich, and therefore can “easily” pay a few percentage pts more – at 50 to 60 percent rates. The fact that higher income households got a larger share of the added income is a good thing, not a bad thing. It is why there is more income for everyone (ie, because more capital is invested).

  9. Nancy says:

    Joe, thanks for those clarifications.

  10. Linda Gorman says:

    To add to Joe’s clarification, most income statistics do not measure in-kind contributions like Medicaid, food stamps, and section 8 housing vouchers. This means that the incomes of the poor are understated.

    Measures of middle-class incomes typically do not include the value of benefits, specifically health insurance. As benefits are an increasing part of compensation, they should be included.

  11. steve says:

    “It is why there is more income for everyone (ie, because more capital is invested).”

    If only this were true. 2001-2008 show the problem with this theory. Making the rich richer only succeeds in making the rich richer. There is no guarantee of trickle down. Conservative need to learn that incentives matter. The wealthy have incentives to make themselves wealthy, not everyone else.


  12. Neil H. says:

    Steve, how much could you produce with an hour’s worth of work if you had no capital. Do you think worker incomes rise because the workers are smarter? Or they work harder? No. Incomes rise because more capital makes an hour’s worth of work more productive.

  13. steve says:

    ” Incomes rise because more capital makes an hour’s worth of work more productive.”

    Only if the wealthy invest that capital. We are concentrating wealth into the hands of very few people. If they choose to instead invest in “innovative financial products” we get no capital investment.


  14. Don Levit says:

    I understand the top 1% changes over time.
    For example, people die!
    In addition, second generations of a family business tend to work less hard than the founder’s generation.
    If you are trying to use your statement as a way to say “Anyone can get wealthy, in the land of the free,” you’re barking up the wrong tree (hey, that rhymes, powerful).
    And, you conveniently left out financial wealth, choosing to rely on income and taxes paid.
    Ten percent of the households own 85% of all financial assets.
    That type of distribution is not healthy and is not sustainable.
    Even the wealthy will suffer, eventually.
    Those are statistics of a banana republic, which we are fast becoming.
    Don Levit

  15. Linda Gorman says:

    Don, where did you get the statistics on holdings fo financial assets? Wealth data are very, very hard to come by.

  16. John Goodman says:

    Don, I don’t know if anyone can get wealthy, but the odds of doing so in this country are better than in most other countries — excepting maybe, Hong Kong.

    The problem with you post is you are implying that families get wealthy and then pass on their wealth for generation after genertion.

    Look at the Forbes 400 list. The great bulk of the richest people in the country came from modest means. They made their money. They did not inherit it.

    Also, there is a lot of turnover at the top. People who are risk takers find their wealth changes a lot over time.

    There is an NCPA study on how much turnover there is over time and from generation to generation. It’s much more than most people suppose. The study is by Andy Rettenmaier. If you hve trouble finding it, post again.

  17. Bart Ingles says:

    I don’t see how it’s possible argue for any particular level of progressivity without first assuring approximately equal taxation for individuals with the same income.

  18. Don Levit says:

    From a paper published by EBRI entitled Notes, May 2010.
    I overstated the figure, according to the top 10%.
    The top 10% own 72.3% of all financial assets. The top 25% own 89% of all financial assets.
    This is on page 3, and the source is the 2007 Survey of Consumer Finances.
    As of 2011, however, the figure I quoted you could be pretty close.
    Go to:
    Let’s assume you are correct about the turnover, whatever it is.
    My point is directed more toward the income disparity and concentartion of wealth, rather than WHO has the concentration of wealth.
    Don Levit