Do Federal Taxes Reduce Income Inequality? (3 min)

From the story that accompanies this story on Citylab.com:

After taxes and transfers, the U.S. is second only to Chile in its level of economic inequality. Yet one of the most basic promises that the U.S. tax system makes is to reduce inequality, as Colin Gordon writes, either "by redistributing market rewards directly, or by sustaining other public policies and public goods that shape wages, income, and wealth."

But just how much do federal taxes alone alleviate inequality? Not much, as this new video from the Brookings Institution shows. David Wessel, Director of the Hutchins Center on Fiscal and Monetary Policy, uses Lego bricks to illustrate how slightly the tax system closes the income gap. Just in time for Tax Day, it's a sobering reminder about how deeply the decline in effective federal tax rates for the richest Americans (and their corporations) has contributed America's gaping economic divide.

And although this video only probes the impact of federal taxes, it's important to remember that state and local taxes tend to be even more regressive. According to a 2015 report from the Institute on Taxation and Economic Policy, the poorest 20 percent of individuals and families pay an average 10.9 percent in state and local taxes, while the top 1 percent pays 5.4.

There are plenty of ways the U.S. could alleviate the income chasm, even before taxes enter the picture. Yet tax reform—slashing those tax breaks for the wealthy—is essential. Death and taxes might be inevitable, but inequality doesn't need to be.