Tax the Rich Now: OECD

NEW YORK ( TheStreet) -- Governments should ensure that the rich pay "their fair share of the tax burden" as part of an effort to tackle rising inequality, the Organization for Economic Co-Operation and Development said in a new report on Monday.

The report found that the average income of the richest OECD countries is about nine times the poorest. Nordic and continental European countries have a lower wage gap compared to the average, but the ratio rises to 10 to 1 in UK, Italy, Japan and Korea. The wage gap is 14 to 1 in the U.S., Israel and Turkey. In Chile and Mexico, the richest 10% have an income that is 27 times the poorest 10%.

Income inequality had widened not just in traditionally high-inequality countries but also in low-inequality countries such as Germany, Denmark and Sweden.

"The social contract is starting to unravel in many countries," OECD Secretary-General Angel Gurría said on releasing the report in Paris. "This study dispels the assumptions that the benefits of economic growth will automatically trickle down to the disadvantaged and that greater inequality fosters greater social mobility. Without a comprehensive strategy for inclusive growth, inequality will continue to rise."

The United States has the fourth-highest inequality level in the OECD, after Chile, Mexico and Turkey. The national income of the richest 1% more than doubled during 1980 and 2008 but the top marginal income tax rate has dropped from 70% in 1981 to 35% in 2010.

The top 1% now makes an average after-tax income of $1.3 million compared to the poorest 20% who make an average of $17,700.

The earnings wage gap has increased as technological advances have favored high-skilled workers. More flexibility in work hours and the availability of part-time jobs has also played a role in widening the wage-gap. Lower benefit levels across OECD countries are another reason why income inequality problems have worsened.

The redistribution of income by taxes and benefits has been limited. Benefits represent only 6% of household income in the U.S. compared to an average 16% for OECD countries.

The report recommends "raising the marginal tax rates on the rich, but also improving tax compliance, eliminating tax deductions and reassessing the role of taxes in all forms of property and wealth."

--Written by Shanthi Bharatwaj in New York

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