. . . it’s best not to make a serious mistake in your attack. Here’s Matt Yglesias:
The answer is that the column labeled “Share of taxes of richest decile” is in fact the share of income taxes paid by the richest decile. The federal income tax in the United States does, in fact, have a progressive rate structure. Federal payroll taxes, state and local sales taxes, most excise taxes, and property taxes all have a regressive rate structure. So, yes, if you look exclusively at the most progressive element of the American tax code, it’s highly progressive. If you compound that exercise by mislabeling your chart, then you can mislead people. You might think it’s a little strange that Greg Mankiw, an economics professor, would mislead people by uncritically endorsing such a misleading chart but Mankiw believes that progressive taxation is immoral and should be opposed even if it enhances human welfare. Perhaps this same moral theory leads him to believe that misleading people about the subject is an act of justice. If so, then I’m not sure it’s really in the interests of Harvard (or the many universities that assign his textbook) to entrust him with the instruction of teenage economics students.
Now I’m not going to argue that the chart Mankiw links to is exactly correct, but it looks like it’s in the right ballpark. And I could tell that Yglesias’ assertion about income taxes was wrong without even looking up the numbers. The top 10% in America pay way over 45% of income taxes, at least as tax incidence is normally estimated. (BTW, the assumption that the incidence of income taxes falls on the people who write out checks to the IRS seems crazy to me, but my fellow economists of the left and right don’t agree.)
It is common knowledge among progressive public finance experts like Peter Lindert that the European tax regimes are able to collect more revenue than ours (as a share of GDP, not in total) by having a more regressive tax system. Mankiw’s link may not be exactly right, but the stylized facts are in the right ballpark. Given that Yglesias is a fan of the European welfare state, I’m surprised he hasn’t read Lindert’s research.
Actually, what most surprised me was the very low share of income earned by the top 10% in Switzerland. That can’t possibly be right, can it?
Yglesias’ strongest argument might be that tax plus transfers in Europe might be more progressive than taxes alone.
BTW, I agree with Yglesias that a progressive (consumption) tax system is desirable, and don’t really buy into Mankiw’s “just deserts” approach. So this post has nothing to do with my ideology. (Of course if I had been born as Greg Mankiw I might feel differently about the just deserts approach.)
To summarize, it’s still safe to use Mankiw’s text, but Cowen/Tabarrok is also excellent. (Can’t afford to piss off any influential bloggers.)
Update: Scott Winship sent me a post with some quite interesting graphs on income inequality. (BTW, I don’t think income inequality is the best way to measure economic inequality–I prefer consumption inequality. But income is what most people use.)