Monday, June 16, 2014

The 1% in the USA is appropriating much more of the GDP than its counterpart in other rich countries

A new study from the OECD adds to the information on the increasing inequality in incomes, which is especially evident in the USA.
The share of the richest 1% in total pre-tax income has increased in most OECD countries in the past three decades, particularly in some English-speaking countries but also in some Nordic (from low levels) and Southern European countries. Today, they range between 7% in Denmark and the Netherlands up to almost 20% in the United States. This increase is the result of the top 1% capturing a disproportionate share of overall income growth over the past three decades: up to 37% in Canada and even 47% in the United States. This explains why the majority of the population cannot reconcile the aggregate income growth figures with the performance of their incomes. At the same time, tax reforms in almost all OECD countries reduced top personal income tax rates as well as rates of other taxes affecting the highest income earners. The crisis did put a temporary halt to these trends – but it did not undo the previous surge in top incomes. In some countries, top incomes had already largely recovered in 2010. To respond to these trends, governments have several options at hand to increase effective taxation paid by top income recipients without necessarily raising their marginal rates, to improve tax compliance and to reduce tax avoidance. 
One conclusion I draw from this study is that the United States has policies that favor the rich to a greater extent than do other developed nations. I suspect that one step to improve the situation would be to revise the tax code, increasing tax rates on high incomes, closing loopholes, and perhaps taxing wealth to some degree.

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