And thank god we don't have a sales tax, for it would decrease the progressivity of the US tax system even more. claim, that the American tax system is progressive compared to those of its advanced economy peer countries, is hard for many (in both the US and in Europe) to accept. The conventional wisdom is that the United States intervenes comparatively little in redistributing income from rich to poor. It is not that these stylized facts are untrue: the figure below shows the reduction in inequality accomplished by government intervention (again using data from the Luxembourg income study)—both taxes and transfers.figure3.jpg
How is it possible that American taxes be progressive, while achieving so little redistribution? The answer is that redistribution is not driven primarily by the structure of taxation, but by its level. The next figure shows the close relationship between the level of taxation (total government revenues in GDP) and reductions in the Gini.
In fact, the association between tax progressivity and overall redistribution across countries is negative, as illustrated below .