Wednesday, 19 September 2012

How rich are the richest? The top income bracket for Personal Income Tax purposes

My previous post raised the question of whether the highest marginal taxes apply to income brackets which are not too high. Increasing these marginal taxes could then penalize the middle class. Two comments: firstly, my claim for increased progressivity obviously includes changing both the marginal tax rates and the income brackets to which they apply, if needed. Secondly, the highest marginal tax rates actually apply to relatively high incomes. The standard way in which the OECD measures this feature of the tax system is the ratio between the lowest income value to which the top marginal tax rate applies and the average wage of the country. In Portugal, this figure amounts to 9.7, as of 2010. Only Chile has a higher score than Portugal in this regard. The differences between the Personal Income Tax schedule applied in 2010 and 2011 are too small to change this figure significantly. 

Source: OECD, Taxing Wages, 2012

Let me stress that this is a rather partial view on progressivity. A tax reform  aimed at increasing progressivity may use both the definition of the income brackets and the marginal tax rates applying to each of them.

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