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The World's Most Progressive Income Tax

Updated: Mar 2, 2023

With the recent re-introduction of wealth tax legislation in California, we thought it timely to understand just how progressive California’s tax structure already is – and to put it in comparative perspective.

For this quick analysis, we pulled data from the OECD and California’s Franchise Tax Board. The numbers are from different years (2008 and 2020, respectively), so the comparison is a rough one. But it suggests something remarkable: California might have the most progressive income tax structure not just in the country, but also across the entire industrialized world.

The top 8.1% of California earners paid 78% of the state’s personal income tax in 2020 – nearly 50 percent more than that group’s share of the state’s earned income.

For comparison: The top 10 percent of earners in famously socialist Sweden paid 0.38 percent more than their share of earned income in 2008. Note the decimal point. Put another way: By this measure, California’s income tax structure is 126 times more progressive than that of Sweden.

It’s not just Sweden. The California income tax structure is nearly 7 times more progressive than Germany’s and nearly 5 times more progressive than that of France. Government plays a much more active role in those countries, but the tax burden is also spread much more evenly across the population.

While this could be a European cultural fondness for the well-heeled, it is perhaps more likely because tax structures that take progressivity too far just don’t work very well. They lead to unstable revenues – that might swing from, say, a $100B budget surplus in one year to a $25B deficit the next year. That makes it hard for government to do its job well, and to help those who need it most.

Reasonable people can disagree on the merits of progressive taxation. But adding a wealth tax to a tax structure that is arguably the most volatile in the world is no longer progressive. It may be irresponsible. If just a small fraction of California’s top earners leave, California could end up with higher taxes and less revenue. That’s a “lose-lose” for everyone.

We believe California can do better.

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