America’s Richest 10% Carry More of the Tax Burden Than Anywhere Else

One of the most popular (and powerful) fiscal conservative talking points when the President pushed to raise taxes on the wealthy last fall was that they already pay quite a bit. In 2009, for instance, taxpayers making over $250,000 made 25.7% of all income, but paid 46% of all taxes. Now, more sleuthing from the indispensable Tax Foundation (HT: Scott Hodge) shows that well-off Americans are not only taxed heavily–they’re taxed more heavily than anywhere else in the developed world.

In a 2008 OECD paper, researchers found that in 2005 the richest 10% of Americans earned about 33.6% of income, but paid 45.1% of all income tax (including payroll taxes). That puts their ratio of taxes paid to income at 1.35, the highest in the sample, which included 24 developed economies. The sample average ratio was 1.11, while the next highest countries were Australia (1.29) and the Netherlands (1.28).

I took the liberty of tossing the OECD data into a graph (below) — share of income earned by the top 10% is on the horizontal axis, share of taxes paid on the vertical. The graph makes clear the consistent, strongly positive relationship between income earned and tax paid by the rich in Western countries — even if the rich are making more of the income in a certain country, they’re also likely to be shouldering more of the tax burden.

I highlighted a few particularly interesting cases from the sample in red here. First is Italy, which is the only other country where the top 10% pay over 40% of the income taxes, and where the top 10% earn even more than in the U.S. One has to wonder whether the proportion of income that goes to the rich receives nearly as much attention in Italy as it does over here.

Another notable example is Poland which, if any country needs to be derided for not taxing the rich enough, would be an excellent candidate. Turns out that the wealthy elite there rake in 33.9% of the income but pay a mere 28.3% of the income taxes.

Finally, we should take note of Iceland, Slovakia and the Czech Republic. Those are the only countries in the sample which use a flat tax system. Though a flat tax has been derided as “unfair” and a handout to the wealthy (who would get to keep more of their own money, forsooth!), these countries show no signs of degenerating into abject plutocracies where monocle-sporting, pinstriped fat cats plunder the country while spurning the burden of taxation. Though the top 10% in Iceland earn a marginally higher proportion than they pay in taxes, Slovakia and the Czech Republic are both exactly on the trend line (in black) in the middle of the pack.

To be fair, these countries are not necessarily low-tax meccas; their flat personal income taxes are often buttressed, as in Slovakia, by extremely high social security levies. Still, we should take heart that countries that have moved away from graduated taxation have not descended into chaos. Certainly, their wealthy populations pay their fair share.

It’s policies that promote a transparent, broad-based and fair system (options including, but not limited to, a flat tax) that we should be talking about, not misguided attempts to extract more money from the wealthy.

David Godow was a research assistant at Reason Foundation from 2010-2011. He primary focused on state and federal tax policy, including sin taxes, income taxes and corporate taxes.