I wish that Joseph Sternberg had included more perspective in his Wall Street Journal op-ed on progressivity in taxes in Germany:
The Germans specialize in devising pithy nicknames for tax problems. The “middle-class belly” describes the way in which Berlin’s income-tax code applies steep marginal rates at lower incomes before leveling off—it looks like a protruding stomach on a graph. And now comes the “whale in the bathtub.” It’s the most serious problem of all, and an illustrative one for the rest of Europe.
Europeans believe their tax codes are highly progressive, giving lower earners a break while levying significant proportions of the income of higher earners and corporations to fund generous social benefits. But that progressivity holds true only for direct taxes on personal and corporate income.
The graph above, reproduced from the op-ed shows total percentage of tax by income decile in Germany and, as you can see, for the poorest income decile taxes are around 35% (mostly VAT) while for the highest income decile taxes are around 45% (mostly income taxes). That’s a a difference of around 10 percentage points or, in other words, Germany’s tax system when taken overall is slightly progressive.
The perspective I wish had been added is a comparison with the U. S. tax system so I decided to supply it. These figures are five years old so they’re slightly dated and derive from a Washington Post column by Ezra Klein. Consider this graph:
Several things are apparent from that graph. The first is that our tax system is relatively flat. The tax rate on people in the lowest decile is around 17% while that of the highest decile is around 31%—a difference of just 14 percentage points. It also bears mentioning that the only time that total taxes have represented such a high percentage of income in our history is at the height of World War II.
Germany could makes its tax system more progressive by reducing or eliminating its VAT. That’s something it should do anyway. The only really practical way to make our system more progressive is by taking a step that is uninteresting to Republicans and which Democrats have already rejected: cutting or eliminating FICA.
One more point. Some will suggest that the substantial difference between the total taxes that Germans levy on themselves with the total taxes that Americans will accept means that there’s a lot of space for tax increases in the United States. Among the many differences between Germany and the United States is that Germans actually get value for their higher taxes. In the United States taxes are largely used to boost the income of the highest quintile of income earners. Most Americans who aren’t in that highest quintile (and some who do) don’t see that as value received.