The need for progressive taxation has been a hot topic of discussion. It has pitted liberals against conservatives. The economists, Emmanuel Saez and Gabriel Zucman, of the University of California at Berkeley, recently published a study, “The Triumph of Injustice.” This will surely add fuel to the fire. The study shows that last year, the 400 wealthiest households paid tax at a lower “effective” rate than the bottom half of the population. This is the first time that this has happened in the U.S. In arriving at “effective” tax rates, they took into account federal income taxes, corporate taxes, state taxes, local taxes and indirect taxes like motor vehicle taxes and license fees for businesses. Citing their work, the Washington Post reported that the study shows that in 2018, whereas the 400 richest families paid an effective tax rate of 23%, the bottom 50% of US households paid an effective tax rate of 24.2%.

For the 400 richest households in the U.S., effective tax rates kept going down. It declined from 56% in 1960 to 47% in 1980. Finally, it went down to 23% in 2018. For the bottom 50% of income, the tax rate remained largely unchanged during this period. While a number of legislative actions led to this situation, the most significant one was the 2017 Tax Cuts and Jobs Act. There are a few economists that have questioned the reliability of the study. Some have claimed that it builds upon the earlier work of Saez and Zucman with the leftist economist Thomas Piketty, who is known to have over-estimated income inequalities. Jason Furman of Harvard University pointed out that by not taking into account refundable tax credits, the effective tax rate overstates the tax burden on those in the bottom half of the income structure.



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