Taxes on the Rich, Part 2

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Taxes on the Rich, Part 2

Summary and Key Takeaways

  • According to the World Inequality Report 2018, there was little or no personal income taxation at the start of the twentieth century in the United States, Japan, Germany and United Kingdom. Income tax was then introduced to partly finance the First World War and top marginal tax rates were raised to very high levels in the 1950s-1970s. The top marginal tax rates rose up to 94% and 98% in the United States and the United Kingdom respectively. The tax rates were then drastically reduced from 70% to 42% in the mid 2000s.

Top Income Tax Rates In Rich Countries, 1900–2017

  • A study by Timbro, Epicenter and Tax Foundation in 2019 states that it is important to consider effective marginal tax rates taking into account all taxes in order to determine the complete tax burden to the rich. They found out that countries differ in the types of taxes levied but most countries have a central income tax and a consumption tax such as Sales Tax and Value Added Tax. The study which compared top effective marginal tax rates on labor income in 41 OECD and EU countries concluded that there is nothing much in common in taxation of the rich.

Top Effective Marginal Tax Rates in 2019 and Their Composition

  • Using OECD Statistics Database, Tax Policy Centre undertook an analysis of top personal and corporate income tax rates, and disposable income as a share of average wages.

Do The Wealthy In The US Pay As Much Taxes As The Wealthy in Japan, Germany, UK and Canada?

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Quotes
  • "The top marginal tax rate is not the effective rate of taxation applied to the rich."
Quotes
  • "Top marginal income tax increased in the United States, Japan, Germany and United Kingdom over the past ten years."
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  • "Countries should be cautious about placing excessive tax burdens on the rich because in the short run high marginal tax rates induce tax avoidance and tax evasion."
Quotes
  • "It is a measure of the degree of redistribution in the tax system hence of great policy interest. However, there is nothing much in common in taxation of the rich."