Two Economic Models For The Poor

Leftists like to portray the European economic model as more “poor” friendly than the United States  economic model. But that depends on what your preferences are: if you are poor and would prefer less disposable income with more government services, then yes, the European model would be preferable. However, if you are poor and would prefer more disposable income with less government services, then no, the European model would not be preferable. It all depends on your preferences.

Economist Tim Taylor, in contrasting government redistrubition trends around the world points this out:

On the tax side, the U.S. tax code is already highly progressive compared with these other countries. The OECD published at 2008 report called “Growing Unequal: Income Distribution and Poverty in OECD Countries, which states (pp. 104-106): “Taxation is most progressively distributed in the United States, probably reflecting the greater role played there by refundable tax credits, such as the Earned Income Tax Credit and the Child Tax Credit. … Based on the concentration coefficient of household taxes, the United States has the most progressive tax system and collects the largest share of taxes from the richest 10% of the population. However, the richest decile in the United States has one of the highest shares of market income of any OECD country.After standardising for this underlying inequality … Australia and the United States collect the most tax from people in the top decile relative to the share of market income that they earn.”

This finding is surprising to a lot of Americans, who have a sort of instinctive feeling that Europeans must be taxing the rich far more heavily. But remember that European countries rely much more on value-added taxes (a sort of national sales tax collected from producers) and on high energy taxes. They also often have very high payroll taxes to finance retirement programs. These kinds of taxes place a heavier burden on those with lower incomes.

5 Responses to “Two Economic Models For The Poor”

  1. Jon says:

    I suspect that the comparison is between US federal taxes and taxes in EU countries. Do you know? If so that’s a misleading measure, because while it’s true that federal taxes are progressive, state and local taxes in the US are regressive.

    Even worse often right wingers only consider one type of federal tax. The federal INCOME tax. That is certainly progressive. But other federal taxes, like payroll taxes and excise taxes, place a higher proportion of the burden on the poor. The net effect is still progressive taxation at the federal level. But then you add in state and local and it becomes much less progressive, as I’ve pointed out here and elsewhere. We have almost a flat tax when you consider the overall picture.

  2. But that’s the point: compared to the USA, Europe has MORE OF the very regressive taxes you claim.

  3. Jon says:

    Do you know if the comparison is between federal taxes and EU taxes or ALL taxes in the US (state and local as well as federal). Or is it just a comparison between federal INCOME taxes and EU taxes?

  4. The article is saying two things. First, that we have a more progressive income tax and second, that we have less regressive other taxes than Europe (VAT, payroll tax, gas taxes, etc).

  5. Jon says:

    So it’s not talking about state and local taxes, which are regressive.

    So for all we know overall taxes in the US may be more regressive than EU.

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