How Governments Tax Reduces Inequality More Than How They Spend

November 6, 2017

How Governments Tax Reduces Inequality More Than How They Spend

Political attention often focuses on how governments spend money to reduce inequality, but direct tax systems (not including sales and other indirect taxes) do more for helping the poor relative to the wealthy in all high-income advanced economies. Before government taxes or spending, US inequality is on par with European countries such as Finland, Germany, or France. Total US spending on social services, like Social Security, Medicare, and Medicaid, are also similar to the average for countries in the Organization for Economic Cooperation and Development (OECD). But its direct tax system is the least progressive, or redistributive, resulting in the highest level of inequality after government intervention.

This PIIE Chart is adapted from Jacob Funk Kirkegaard’s Policy Brief Tax Overhaul Risks Making the US Tax and Transfer System (Even) More Regressive.

Authored and published by the contributors at the Peterson Institute: https://piie.com/research/piie-charts/how-governments-tax-reduces-inequality-more-how-they-spend