Why are State Taxes Less Progressive?

More

Oregon is planning to raise its tax on beer by 1,900%, which seems like both an irresistible tax-day story and a good chance to write about the differences between state and federal taxes.

In general taxes on consumption goods with negative externalities -- like cigarettes and gasoline and, arguably, alcohol -- are desirable. But taxes on non-luxury consumption goods also tend to be regressive: Bill Gates might be worth a million times as much as the average American, but he does not, alas, consume a million times as much beer. Probably not even half that.


States taxes lean towards sales and consumption more than federal taxes, which is why, when you consider the overall tax distribution by income, instead of simply the federal tax burden by income, the tax code looks less progressive than it otherwise would (H/T Ezra Klein and Catherine Rampell):

550 total effective tax rates.jpg

The organization that put together this nice chart, Citizens For Tax Justice, uses it to make the point that effective tax rates are "not significantly higher" for the rich than for the middle class, and that the tax system as a whole is "not as progressive as you think." I'd say that's a matter of interpretation. The tax code is obviously still progressive. Coming to a conclusion -- "too progressive," "not progressive enough," etc -- isn't something you can do with a chart.

The other thing that's worth noting about this chart is slight dip in effective rates for the top 4% and top 1%. As I understand it, this has nothing to do with state taxes and everything to do with the fact that the wealthiest Americans get a huge portion of their income from dividends and capital gains, which are taxed at a lower rate. That's the classic Warren Buffett complaint about the tax code.

Jump to comments
Presented by

Conor Clarke is the editor, with Michael Kinsley, of Creative Capitalism. He was previously a fellow at The Atlantic and an editor at The Guardian. More

Conor Clarke is the editor, with Michael Kinsley, of Creative Capitalism, an economics blog that was recently published in book form by Simon and Schuster. He was previously a fellow at The Atlantic and an editor at The Guardian. He is also on Twitter.
Get Today's Top Stories in Your Inbox (preview)

A Delightful, Pixar-Inspired Cartoon About the Toys in Your Cereal Box

The story of an action figure and his reluctant sidekick, who trek across a kitchen in search of treasure.


Elsewhere on the web

Join the Discussion

After you comment, click Post. If you’re not already logged in you will be asked to log in or register. blog comments powered by Disqus

Video

Juice Cleanses: The Worst Diet

A doctor tries the ever-popular Master Cleanse. Sort of.

Video

Why Did I Study Physics?

Using hand-drawn cartoons to explain an academic passion

Video

What If Emoji Lived Among Us?

A whimsical ad imagines what life would be like if emoji were real.

Video

Living Alone on a Sailboat

"If you think I'm a dirtbag, then you don't understand the lifestyle."

Feature

The Future of Iced Coffee

Are artisan businesses like Blue Bottle doomed to fail when they go mainstream?

Writers

Up
Down

More in Politics

Just In