Earlier this year, U.S. News released their Social Purpose ranking of countries considered “the most progressive, inclusive, and being committed to social justice.” Here are the Top Ten countries on their list:
Canada
Denmark
New Zealand
Sweden
Netherlands
Norway
Finland
Australia
Switzerland
Austria
In the first post of this series, I looked at the personal income tax systems of these countries, specifically their top tax rates and the level of income at which the top rate kicked in, expressed as a multiple of the average wage. For example, if a country’s average wage were $50,000 a year, and the multiple was 1.3, then the top tax rate would kick in at a wage of $65,000 (i.e., 1.3 x $50,000). This is what I found:
A tax system is progressive when the rich pay higher taxes than the non-rich. This can happen because the rich are subject to a higher tax rate or what’s being taxed is associated with rich people, e.g., a tax on yachts or jewelry. Progressivity isn’t an either/or thing though: tax systems are more or less progressive. For example, an income tax system where the top tax rate applies to middle-class taxpayers as well as the rich may still be progressive but not all that much - which is the case with most of the Top Ten most progressive countries in the above table.
The big exception is Austria, which appears to have a very progressive income tax system, with a very high top rate that only the very rich pay. But the top tax rate tells only part of the story. In Austria, the middle-class also pay high taxes, just not quite as high as the very rich. For instance, the tax rate for an income of $73,200 is 48% - higher than the top personal income tax rate in several of the Top Ten most progressive countries (plus Germany and UK).
Of course, the “sticker” tax rate may not be the effective rate - what the taxpayer actually pays. Either way, the tax burden of the middle-class is rather large in most Top Ten countries, mostly due to their high income and consumption taxes. Take a look:
Note that high taxes on goods and services are often considered regressive, because the rich spend comparatively less on goods and services as a share of their income than do lower-income groups. But the salient point about the most progressive countries in the US News ranking isn’t that their tax systems are progressive or regressive, it’s that they’re broad-based: and just about everyone contributes something to the public coffer.