When I was at the New York office of The Economist, I witnessed the same phenomenon several times. A new correspondent would be posted there and settle happily in to his new office. Several weeks later, the first paycheck would arrive, and the swearing would start. Indignantly waving his pay stub, the recent arrival would march into the common are and demand to know why the hell people were talking nonsense about America being a low tax country?
We would patiently explain that New York is an outlier, which did little to remove the sting. But comparisons of the US and other countries often do overstate the laissez fair nature of our tax system, as Stumbling and Mumbling points out:
George Bush is a stronger believer in income equality than Gordon Brown.
These figures (pdf) from the CBO (via Greg Mankiw and the Kruse Kronicle) show that the poorest fifth of Americans paid an average of 4.3% of their income in federal taxes whilst the richest fifth paid 25.5%.
How do these figures compare to the UK? Table 16A here gives the answer. The poorest quintile in the UK paid 36.5% of their income in tax, whilst the richest fifth actually paid less - 35.5%.
. . .
However, if we look only at income tax and national insurance, the UK system is still less progressive than the US's, at the federal level. The bottom fifth pay 6.2% in direct tax (net of credits) whilst the top fifth pay 23.7%. The ratio of these tax rates is 3.8, compared to 5.9 for the US federal tax takes.
No one believes me when I say that George Bush's tax cuts made the tax system more progressive, but it's true--the cuts for poor people were, on a percentage basis, bigger than the cuts for rich people. The estate tax might change that picture, but it raises very little money, and is only really starting to kick in over the last few years. This is not an endorsement of the wisdom of the tax cuts, just an empirical observation about their effect.
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