Excessive Focus On Progressive Taxation Can Make It Hard To Curb Inequality

A blog about business and economics.
Nov. 30 2012 3:23 PM

Excessive Focus On Progressive Taxation Can Make It Hard To Curb Inequality

Eduardo Porter had a great and under-discussed column in the NYT about how excessive focus on progressive taxation can undermine egalitarian goals. The basic point is that the structure of most social spending programs is very strongly progressive, so a key aspect of redistribution is simply to have enough money:

Despite the progressivity of our taxes, according to a study of public finances across the industrial countries in the Organization for Economic Cooperation and Development, we also have one of the least effective governments at combating income inequality. There is one main reason: our tax code does not raise enough money.

Now a dollar raised from the rich is more redistributive than a dollar raised from the non-rich. But getting hung up on this can cause problems. For example, you could raise $1.3 trillion by capping itemized deductions at $25,000 a year. And this would be a strongly progressive tax hike that leaves the vast majority of middle class families unscathed while overwhelmingly raising money from high-income households. But the White House rejects this idea on the grounds that it doesn't raise taxes on literally zero middle class households. Then Jason Furman and Gene Sperling go on to point out that if you structure the rate cap so as to raise no money on households with less than $250,000 AGI you can't raise very much money.

The lesson they take from this is that we should reject the deduction cap approach. But the correct lesson to take is simply that dogmatism about the $250,000 point makes it impossible to tap a potentially rich vein of tax revenue.

From time to time the Obama administration has recognized this. The Affordable Care Act is financed in part with an "excise tax" on very expensive employer-provided health insurance plans. Since the basic bargaining dynamic that persuades your employer to buy you a very expensive health insurance plan is the same as the one that might persuade your employer to pay you a high salary, the incidence of this tax falls overwhelmingly on high-income people. But there are a few exceptions here and there due to the contingencies of life. So capping the tax deductibility of employer-provided health insurance is a very progressive tax measure, but not one that strictly excludes all middle class families. In the health care debate, the White House wisely chose to basically ignore their pledge—deploying the excise tax concept as a fig leaf of consistency.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.



Blacks Don’t Have a Corporal Punishment Problem

Americans do. But when blacks exhibit the same behaviors as others, it becomes part of a greater black pathology. 

I Bought the Huge iPhone. I’m Already Thinking of Returning It.

Scotland Is Just the Beginning. Expect More Political Earthquakes in Europe.

Lifetime Didn’t Think the Steubenville Rape Case Was Dramatic Enough

So they added a little self-immolation.

Two Damn Good, Very Different Movies About Soldiers Returning From War

Medical Examiner

The Most Terrifying Thing About Ebola 

The disease threatens humanity by preying on humanity.

Students Aren’t Going to College Football Games as Much Anymore, and Schools Are Getting Worried

The Good Wife Is Cynical, Thrilling, and Grown-Up. It’s Also TV’s Best Drama.

  News & Politics
Sept. 19 2014 9:15 PM Chris Christie, Better Than Ever
Sept. 19 2014 6:35 PM Pabst Blue Ribbon is Being Sold to the Russians, Was So Over Anyway
Inside Higher Ed
Sept. 19 2014 1:34 PM Empty Seats, Fewer Donors? College football isn’t attracting the audience it used to.
  Double X
The XX Factor
Sept. 19 2014 4:58 PM Steubenville Gets the Lifetime Treatment (And a Cheerleader Erupts Into Flames)
  Slate Plus
Slate Picks
Sept. 19 2014 12:00 PM What Happened at Slate This Week? The Slatest editor tells us to read well-informed skepticism, media criticism, and more.
Brow Beat
Sept. 19 2014 4:48 PM You Should Be Listening to Sbtrkt
Future Tense
Sept. 19 2014 6:31 PM The One Big Problem With the Enormous New iPhone
  Health & Science
Medical Examiner
Sept. 19 2014 5:09 PM Did America Get Fat by Drinking Diet Soda?   A high-profile study points the finger at artificial sweeteners.
Sports Nut
Sept. 18 2014 11:42 AM Grandmaster Clash One of the most amazing feats in chess history just happened, and no one noticed.