I’ve shared some interested rankings on tax policy, including a map from the Tax Foundation showing which states have the earliest and latest Tax Freedom Days.
There’s also a depressing table showing that the United States “earns” a lowly 94th place in a ranking of business-friendly tax system.
Heck, there’s even a map showing the states with the highest wine taxes, as well as a map showing which states have the lightest and heaviest tax burdens compared to income.
So I was very interested to see this table from the Tax Foundation revealing which countries have the most punitive regimes for penalizing success.
Portugal has the dubious honor of having the most progressive (i.e., discriminatory) tax system in the developed world.
I don’t think anyone is surprised to see France in second place, though I confess that I was not expecting to see pro-reform success stories such as Chile and Canada in the top five.
And I’m totally embarrassed that the United States is #8, worse than such garden spots as Greece, Mexico, and Belgium.
Though it’s important to understand that the Tax Foundation is relying on a narrow definition of progressivity.
One way to measure and compare the progressivity of income tax codes across countries is to express the level of income at which each country’s top tax bracket applies as a multiple of that country’s average income.
That’s a useful bit of information and it shows one aspect of progressivity, but it’s also a bit misleading since it implies that the Swedish tax system (with a top tax rate of 56.7 percent) is less progressive than the Slovakian tax system (with a top tax rate of 21.7 percent).
You won’t be surprised that I think a ranking that purports to show the burden of “progressive” taxation should include the top tax rate.
Speaking of which, this is why I like the Tax Foundation’s measure of progressivity on the state level.
The…table also shows the gap between the top marginal tax rate and the marginal tax rate on $25,000 of taxable income. …Twenty-one states and the District of Columbia have progressive rate structures that rise after $25,000. California, New Jersey, and Vermont have the most progressive rate structures by a wide margin.
Who could have guessed that California would be the worst state, though I’m not surprised to see New Jersey (the worst place to die) and Vermont (worst place for self reliance) have such poor ratings as well.
And is anyone even remotely shocked to see that states with no income taxes manage to avoid any problems with ‘so-called” progressivity? Not surprisingly, they also grow faster and create more jobs.
The moral of the story, at the very least, is that America needs a simple and fair flat tax.
[…] Mirror, Mirror, on the Wall, which Nation and State Punish Success Most of All? […]
[…] are several ways to slice the data, so one can quibble with Brian’s assertion. But when comparing taxes paid by the rich compared to […]
[…] are several ways to slice the data, so one can quibble with Brian’s assertion. But when comparing taxes paid by the rich […]
[…] in 2014, I shared some data from the Tax Foundation that measured the degree to which various developed [READ MORE […]
[…] in 2014, I shared some data from the Tax Foundation that measured the degree to which various developed nations punished […]
[…] in 2014, I shared some data from the Tax Foundation that measured the degree to which various developed nations punished […]
[…] in 2014, I shared some data from the Tax Foundation that measured the degree to which various developed nations punished […]
[…] in 2014, I shared some data from the Tax Foundation that measured the degree to which various developed nations punished […]
[…] in 2014, I shared some data from the Tax Foundation that measured the degree to which various developed nations punished […]
[…] in 2014, I shared some data from the Tax Foundation that measured the degree to which various developed nations punished […]
[…] in 2014, I shared some data from the Tax Foundation that measured the degree to which various developed nations punished […]
[…] in 2014, I shared some data from the Tax Foundation that measured the degree to which various developed nations punished […]
[…] in 2014, I shared some data from the Tax Foundation that measured the degree to which various developed nations punished […]
[…] in 2014, I shared some data from the Tax Foundation that measured the degree to which various developed nations punished […]
[…] in 2014, I shared some data from the Tax Foundation that measured the degree to which various developed nations punished […]
[…] in 2014, I shared some data from the Tax Foundation that measured the degree to which various developed nations punished […]
[…] in 2014, I shared some data from the Tax Foundation that measured the degree to which various developed nations punished […]
[…] in 2014, I shared some data from the Tax Foundation that measured the degree to which various developed nations punished […]
[…] in 2014, I shared some data from the Tax Foundation that measured the degree to which various developed nations punished […]
[…] in 2014, I shared some data from the Tax Foundation that measured the degree to which various developed nations punished […]
[…] in 2014, I shared some data from the Tax Foundation that measured the degree to which various developed nations punished […]
[…] the top tax rate obviously is an important measure of a state’s economic […]
[…] in the state. Or you could argue that the tax system for employers is the key metric. And the top tax rate obviously is an important measure of a state’s economic […]
[…] the top tax rate obviously is an important measure of a state’s economic […]
[…] Mirror, Mirror, on the Wall, which Nation and State Punish Success Most of All? […]
Dan:
I’m on board with a single tax rate, whether it be on income or sales, because of the efficiency of collection, and the growth stimulus coming from the lowest possible tax rate.
However, the article doesn’t make sense regarding “progressivity”. I fail to see how taxing those at a multiple of 16 (Portugal) with the highest rate is somehow worse than taxing success at a multiple of 5. If Portugal moved to a multiple of 5 they would effectively have higher taxes collected and the successful would be worse off.
Progressivity actually covers a much broader range than just the tax code and tax rates. It includes benefits outside the tax code like charity, means-tested benefits, and entitlements along with those inside that tax code which include standard deductions, special credits, and multiple tax rates.
The advance of a single tax rate is that it should cap the marginal tax rate for all at a single rate. This would affect not only the rich, but those working their way out of a bad situation, like a woman on welfare or someone receiving disability.
Progressivity is not bad per se, and there would be no practical way to eliminate all levels of support. The key is to find the best way to add progressivity without losing the efficiency of a flat tax, while eliminating the mal-incentives relating to loss of means-tested or disability benefits or entitlements at a higher effective tax rate than the single flat rate.
By this metric, a nation that has a flat but low tax (eg. 15%) would get the worst ranking because the percent of average income where the max tax rate applies is 0%. To pick a favorite free market system: eg. a wealthy country with 50k average income a 10k income tax exclusion and then a flat 14% tax rate would get a terrible score, since the top tax rate would apply at 0.2 of average income. But it would clearly be much better than Portugal or France.
————————-
Which takes us back to the main taxation burden difference between the US and Europe. The rich are taxed at comparable levels in both continents. The big difference is in the middle and lower incomes where Europe applies hefty taxes (income plus the equally heavy VAT) already at these lower incomes, while in the US middle incomes pay little tax, and about half of all American taxpayers pay only sales tax (plus the indirect taxes paid by their employers as well as implicit regulatory taxes that are significant but still higher in Europe overall).
Essentially, in Europe, the socialism that the European People themselves created has already Laffered(*) most of the rich, so socialism has now inevitably turned against and is consuming its very own creators: The middle and lower income lemmings that brought socialism to life in the first place.
Its a deadlocked situation from where there is no exit and where the compounding growth deficit compared to world average growth will bring the prosperity levels of Europeans on par with the world average within a few short decades. The strengthening integration of the EU tax cartel will ensure that decline is communitized and thus no nation in the EU escapes that fate. This trajectory in America is essentially what you see under a strengthening Federal Government imposing HopNChange. Good luck.
From Zorba’s dictionary:
(*) “To Laffer someone”: To drive a person past the peak of the shorter term Laffer curve, so that further increases to the tax rate produce negative revenue feedback even within a few short years.
(**) a similar but much more important verb is “To Rahn somebody”: ie. to tax someone enough that his motivation to work drops below the equivalent motivation of his peers in competing nations and your nation enters a relentlessly compounding low growth decline spiral.
P.S. Needless to say, most western democracies have “Rahned” most of their citizens (actually the citizens have “self Rahned” themselves) and this is why virtually none of the developed western democracies can match as much as the average annual world growth trendline ( with the few small exceptions comprised of those nations ranking in the first few spots of the Economic Freedom scale).
PS. Europe still has quite a few very rich people. They are primarily the result of crony capitalism ( they are in the alternative energy business, they are in private-state partnerships, they work for the OECD). All the crony capitalism that comes part and parcel with more coercive collectivism. Below that elite, most typical Europeans live in yardless 1200sqf apartment block cells and drive a 1400cc FIAT (amongst other riches).
Beware of what you wish for Americans! Not that there is much hope — you are now past the point of no return and coercive collectivism has gathered a momentum all of its own. American voter-lemmings are now on autopilot to the self-destruction of a once enviable worldwide prosperity rank.
Those who want to escape (or at least make the best of) this fate should actually COPY Europeans at the PERSONAL level. How did European Old money come to be? Mimic their actions. Forget the older American higher mobility and welcome the European class rigidity of coercive collectivism. This is the phase where American Old Money is been created, once and for all. If you don’t get on board with the crony wealth creation now, your only distant and eventual hope will be emigration somewhere long down the line. Speculation on my part? Yes true. But educated speculation. There are more chances than not that I’ll be right. Or, at least those who think that this is a remote scenario are taking up incredible risk. I have seen the voter-lemming vicious cycle in many European environments and in my opinion you’re in the midst of it.