Prof. Mankiw posted the following link on his blog — saying that it demonstrated that the U.S. had the most progressive tax system in the developed world:
This was a bit surprising to me, so I was wondering if you had any thoughts? I’m inclined to dismiss it by noting that the US probably has the most unequal distribution of wealth of all those countries and, hence, that our tax system is not sufficiently progressive. Am I missing something?
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.