Do the rich pay enough tax? | The Economist

There's a narrative out. there that says in the late. 20th century the welfare. state was rolled back, government shrank. We had Thatcherism. and Reaganism. And we lived in this neoliberal, small-government environment. But that's not what the figures. on redistribution show. The figures on redistribution. show that we've got steadily. more of it. So if you look in the. United States in 1979, the bottom fifth of earners. received 32% of their market. incomes in transfers. from the government.

Today, on the latest figure from. the Congressional Budget Office, that's 72%. And the top 1% pay a higher. average rate of. federal income tax. now than they did in 1979, albeit not the highest. over the period. And so we've had much more. redistribution in America. Now, one counterpoint to that is, of course, that inequality. has gone up when you look at. people's earnings. So we've got a chart. on this, again, showing the CBO data. that show what inequality, measured by the Gini index,

a common measure of inequality. has done before. and after taxes and transfers. And you can see that steady. upward trend in the dark. red line in inequality. before tax and transfers. What you can see in that. pinker line beneath. is that after tax. and transfers inequality. has been much flatter. And we're sort of towards. the higher end of. historical range there. So this greater redistribution. in America over the long. term has leant against. this increase in inequality, arguably pretty successfully.

Then when you look. in the rest of the rich world, it's gone even further, especially since 1990. You have inequality. going up in the 80s, but since 1990 inequality. after tax and transfers has. generally gone down. in the rich world. And this has been particularly. acute in Europe. and especially in Britain. And we have a chart here. of British incomes. over the past decade or so. and it shows income growth. at different positions. in the income distribution. 10, 25, 50, 75, 90.

You can see as you go up. the income distribution. the income growth people. have seen really goes down. And that's because. British income taxes have. become a lot more progressive. A lot more redistribution. has gone on and, indeed, inequality in the UK. if you look after taxes. and transfers is now lower. than it was in 1986, which is pretty extraordinary. given the narrative. about ever-rising inequality. that you hear in lots of places. It's simply the case that. governments are doing. more redistribution. than they used to.

And like I said, America is sort of offsetting. rising inequality. In Europe it's swinging. the pendulum the other way. and you've got falling inequality. in many places.