Fiscally redistributive taxes can be regressive if transfers are progressive enough to offset their regressive effect.
Neil Brooks & Thaddeus Hwong 10, Brooks teaches tax law and policy at Osgoode Hall Law School, York University, Canada, and is a Senior Fellow of the Taxation Law and Policy Research Institute, Monash University; Hwong teaches tax law and policy at Faculty of Liberal Arts and Professional Studies, York University, Canada, and is a Fellow of the Taxation Law and Policy Research Institute, Monash University, “Tax Levels, Structures, and Reforms: Convergence or Persistence,” 11 Theoretical Inq. L. 791, July 2010, Lexis
Moreover, in reply to those who argue that if too large a share of tax revenues is in the form of regressive taxes the tax system cannot be used as an effective instrument to redistribute income, a number of commentators have pointed out that most countries achieve inequality reduction primarily through the transfer side of their budgets. 52 If the amount of fiscal redistribution is measured by focusing on the absolute change in the Gini coefficient of inequality before and after government taxes and transfers, across thirteen major industrialist countries on average about 25 percent of the change is accounted for by taxes and 75 percent by transfers. 53 Moreover, [*818] the proportion of the change due to transfers is generally higher in more egalitarian countries. For example, in Sweden, where the total change in the Gini coefficient due to fiscal redistribution was on average 0.218 in recent years, taxes accounted for only about 18 percent of the fiscal redistribution; whereas in the U.S., where the total change in the Gini coefficient due to fiscal redistribution was only 0.102, taxes accounted for about 45 percent of the change. 54 Of course, in part, the U.S. tax system plays a larger relative role in redistribution because transfers are so low in that country and do little to redistribute income; nevertheless, the fact that transfers can be relatively effective at reducing inequalities has led some commentators to suggest that progressive taxes are not needed for achieving a more equal society. 55