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Tax Overhaul Risks Making the US Tax and Transfer System (Even) More Regressive

Jacob Kirkegaard

No PB17-28, Policy Briefs from Peterson Institute for International Economics

Abstract: Market income inequality, calculated before government taxes and transfers, in the United States is not noticeably higher than in many other advanced economies, including those in continental Europe. Disposable income inequality, after taxes and transfers, however, is higher in the United States than in other members of the Organization for Economic Cooperation and Development (OECD) because of how it distributes government transfers and collects tax revenue to finance its general government. The evidence gathered from this global study of taxes concludes that the combination of the US tax code and the US system of transfer payments to low-income American families constitutes the least redistributive transfer and tax system in the OECD. Inequality and redistribution questions should always be at the center of current debates about government transfers but also when the discussion is about overhauling the federal tax code. Revised September 2021 This version corrects some errors in the originally published version in calculating the effect of taxes versus transfers in reducing the Gini coefficients in advanced economies.

Date: 2017-10
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