Lessons from the Snowy Slope: Vision and Politics in American Social Insurance

McGovern, Kate

doi:10.1111/j.1536-7150.2012.00868.x

Cited by 2 publications

(2 citation statements)

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“…Thus, we believe that such similarities between tax systems make our analysis particularly instructive for the US case, where discussions about removing the contribution cap are ongoing (Whitman 2009;McGovern 2013). Hence, the architecture of wage taxation combined with wage dispersion could play an important role in the dispersion of household income in the US.…”

Section: Discussionmentioning

confidence: 96%

Payroll-Exempt Labor Incomes Increase Inequality at the Top

Haupt

Nollmann

2021

Social Forces

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In recent decades, the inequality of household income has increased globally. A common trend is increased income inequality at the top of the distribution. The sources of this trend are a matter of debate. Increased demand for analytical and managerial skills is said to have strongly increased labor incomes at the top. Other scholars have indicated that structural conditions, such as financialization or favorable taxation, have benefited top-earning households. Here, we contribute to the latter line of reasoning. We show that payroll taxes exempt parts of high labor incomes, reinforcing income inequality at the top. Such taxation has large fiscal volume and redistributive power. However, our knowledge about the distributional consequences of payroll taxation as a tax scheme is remarkably thin. Many countries, such as Germany and the United States, restrict payroll taxes to a maximum amount, resulting in significant payroll tax–exempted incomes for high-earning households. Strongly growing top-labor incomes thus lead to increased payroll tax–exempted incomes for households at the upper parts of the distribution and, consequently, to higher income inequality. We use Germany (1992–2017), a highly redistributive country, as a case study. Our empirical results suggest that: (1) households increasingly profit from payroll-exempted labor incomes across the upper quarter; (2) this benefit has increased over time; and (3) increased amounts of payroll tax–exempted labor income explain up to 60 percent of income dispersion at the top of the distribution. We discuss the generalizability of our case study for other countries, especially the United States.

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Section: Discussionmentioning

confidence: 96%

Payroll-Exempt Labor Incomes Increase Inequality at the Top

Haupt

Nollmann

2021

Social Forces

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show abstract

“…Thus, we believe that such similarities between tax systems makes our analysis particularly instructive for the US case, where discussions about removing the contribution cap are ongoing (Whitman 2009;McGovern 2013). Hence, the architecture of wage taxation combined with wage dispersion could play an important role in the dispersion of household income in the US.…”

Section: Discussionmentioning

confidence: 96%

Payroll-exempt labor incomes increase inequality at the top

Haupt¹,

Nollmann²

2021

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In recent decades, inequality of household income has increased globally. A common trend is increased income inequality at the top of the distribution. The sources of this trend are a matter of debate. Increased demand for analytical and managerial skills is said to have strongly increased labor incomes at the top. Other scholars have indicated that structural conditions, such as financialization or favorable taxation, have benefited top-earning households. Here, we contribute to the latter line of reasoning. We show that payroll taxation reinforces income inequality at the top. Such taxation has large fiscal volume and redistributive power. However, our knowledge about the distributional consequences of payroll taxation as a tax scheme is remarkably thin. We claim that payroll taxes are central to understanding income inequality. Many countries, such as Germany and the US, restrict payroll taxes to a maximum amount, resulting in significant payroll tax-exempted incomes for high-earning households. Strongly growing top-labor incomes thus lead to increased payroll tax-exempted incomes for households at the upper parts of the distribution and, consequently, to higher income dispersion. We use Germany (1992–2017), a highly redistributive country, as a case study. Our empirical results suggest that: a) households increasingly profit from payroll-exempted labor incomes across the upper quarter; b) this benefit has increased over time; and c) increased amounts of payroll tax-exempted labor income explain up to 60% of income dispersion at the top of the distribution. We discuss the generalizability of our case study for other countries.

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Lessons from the Snowy Slope: Vision and Politics in American Social Insurance

Cited by 2 publications

References 5 publications

Payroll-Exempt Labor Incomes Increase Inequality at the Top

Payroll-Exempt Labor Incomes Increase Inequality at the Top

Payroll-exempt labor incomes increase inequality at the top

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