“How Progressive is the U.S. Federal
Tax System? A Historical and
International Perspective”
Thomas Piketty- Economics Professor, Paris
Emmanuel Saez- Economics Professor, Berkley
National Bureau of Economic Research
Flat tax
Base
Rate
Taxes
10,000
30%
3,000
50,000
30%
15,000
100,000
30%
30,000
Progressive Tax
Base
Rate
Taxes
10,000
20%
2,000
50,000
30%
15,000
100,000
40%
40,000
What does that mean for income
distribution?
100
90
80
70
60
50
40
30
20
10
0
Pre-Tax
Wealth
After-Tax
Wealth
Low Income High Income
Flat Tax
100
90
80
70
60
50
40
30
20
10
0
Pre-Tax
Wealth
After-Tax
Wealth
Low Income High Income
Progressive Tax
Why not a flat tax?
• Does a CEO deserve their income less than a
minimum-wage employee?
– Irrelevant
Reasons
- Portion is undeserved rent (Land ownership)
- Income inequality leads to crime/murder
- As income rises, need for that income drops
- Gov. must tax where the wealth is
*Roughly 20 economically weak countries have a
flat tax
What makes our system progressive
Taxable
Income
Tax Bracket
$0-$8,500
10%
$8,500$34,500
15%
$34,500$83,600
25%
$83,600$174,400
28%
$174,400$379,150
33%
$379,150+
35%
•
•
•
•
FROM the RICH
Estate Taxes
Capital Gain Taxes
Tax credit limitations
•
•
•
•
TO the POOR
Welfare
Social Security
Other Gov. Programs
+
1970
2004
Income
Groups
Pre-tax
Income
Share
Post-Tax income
share
Income
Groups
P0-90
67.61
70.54
P0-90
53.75
57.28
P90-95
10.76
11.1
P90-95
11.3
11.1
P95-99
12.6
12.23
P95-99
15.3
14.5
P99-99.5
2.87
2.39
P99-99.5
4.1
3.7
P99.5-99.9
3.63
2.62
P99.5-99.9
6.6
5.8
P99.9-99.99
1.76
0.94
P99.9-99.99
5.5
4.7
P99.99-100
.76
.25
P99.99-100
3.5
3
Pre-tax
Income Post-Tax income
Share
share
Change
• 1. Dramatic reduction in rates
• 2. Corporations paying half the taxes they did
in the 60’s
• 3. Payroll taxes substantially larger…
BUT only incomes over 106,800 are effected.
Conclusion
• Other developed countries are far more progressive
– UK/France
• Most dramatic changes occur within top 1% of earners
– Tax system is being shaped by the wealthy
• Progress Taxation has declined dramatically since the 60’s
– Top earners used to pay over 70% of income in Taxes