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

Policy Brief
17-28
October 2017
Photo Credit: 
REUTERS/Joshua Roberts

US policymakers should be particularly concerned about the effects of any new tax legislation on the incomes of individuals and businesses because of rising income inequality in the United States and the relatively limited US social safety net financed with government taxes. The evidence gathered in this Policy Brief shows that among the world’s high-income countries, the United States has the least redistributive government tax and transfer system, mainly because it chooses to redistribute relatively less through direct tax collection and government transfers to low-income American families. Therefore, any proposed revenue generation measures involving federal value-added taxes or general sales taxes, unless supplemented with increases in government transfers or designed to be less regressive, will only worsen income inequality in 21st century America.

Data Disclosure: 

The data underlying this analysis are available here.