Aug 13th, 2008 at 5:31 pm
The Rich Get Richer
New Center on Budget and Policy Priorities analysis by Chye-Ching Huang and Chad Stone shows that the pre-tax share of income going to the top one percent of the income distribution has reached its highest levels since 1928:
Naturally, conservatives think the best way to respond to this would be by reducing the tax burden on the long-suffering super-rich. Recently I’ve been reading Larry Bartels’ recent book on the political economy of the new gilded age in which he argues pretty convincingly that partisan politics has a bigger impact on the pre-tax distribution than many people are inclined to think.
39 Responses to “The Rich Get Richer”
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August 13th, 2008 at 5:36 pm
CLASS WARFARE! CLASS WARFARE! CLASS WARFARE!
August 13th, 2008 at 5:58 pm
Hey matt over at sadly no they rip you a new one, some unfair, some right on the money.
August 13th, 2008 at 6:17 pm
Hey, look over there! Gay people! I think they might be getting abortions!
August 13th, 2008 at 6:19 pm
That, plus the Median Income sliding ever downwards, should wake people up. But alas, it won’t.
August 13th, 2008 at 6:20 pm
Trust your mechanic to fix your car…you see an awful lot of him now…
August 13th, 2008 at 6:25 pm
Re scythia
Since todays’ cars are far superior technically to those of 25 years ago, they will last longer with much less maintainance.
August 13th, 2008 at 6:35 pm
Re SLC
Wow. Win.
August 13th, 2008 at 6:46 pm
Any second now a supposed libertarian will show up to tell us how this is fine and keeps the American dream alive. But I remember what an old economics teacher of mine used to say “the reason the rich pay more taxes is so that the public don’t show up with torches and pitchforks.”
August 13th, 2008 at 7:11 pm
Why do you show the inequality in the pre-tax distribution of income, and then recommend fixing the problem by changing the tax rates. This makes no sense. Changing the tax rates will not directly affect the pre-tax distribution at all. Furthermore, to the extent that pre-tax income does react to the tax changes changes, the effect would probably be to “undo” them to some extent, leading to even more “pre-tax” inequality than before. It’s post-tax inequality you should care about.
August 13th, 2008 at 7:47 pm
This reminds me of a headline I saw in The Onion once: “Horrible Asshole richer than ever”.
August 13th, 2008 at 7:52 pm
Ed is correct about post-tax inequality. More specifically post-tax inequality that arises from situations perceived to be unfair is the issue. Secondly, your title that “the rich get richer” assumes that the rich are a static class of people. This is patently false. A size charge of the demographic differences in income can be found here.
August 13th, 2008 at 7:53 pm
chart not “size charge”, no preview function?
August 13th, 2008 at 8:19 pm
It’s post-tax inequality you should care about.
Oh, we do.
(this may be a different ed. and I may have been here first)
August 13th, 2008 at 8:33 pm
We should keep in mind that the top 1% income earners (earning $388,000 or more) pay 40% of all income tax revenues. The top 5% income earners (earning $153,000 to $388,000) pay 60% of all income taxes, and the top 10% (earning $108,000 to $153,000) pay 70%.
The bottom 50% of income tax earners (earning < $32,000) pay just 3% of all income tax revenues. Many people earning under $20,000 pay negative income tax through the EITC.
These numbers are of 2006. Back in 1999, the top 1% of income earners only paid 36% of all income tax revenues…
If you’d like to see total tax rates, see (http://www.cbo.gov/ftpdocs/88xx/doc8885/12-11-HistoricalTaxRates.pdf). The top 10% of income earners paid 55% of all income and payroll taxes. But of course, we “all know” the payroll taxes “are being saved for us.”
We also might want to remember that 24 million people (15% of the labor force) in the US are foreign born. Of those, about 30% do not have a high school degree (compared to 6% of native born workers).
No doubt the children of these foreign-born workers will be more likely to get a high school and higher education, so we should expect there to be greater income equality in the US once the large influx of less-educated foreign born workers slows down (which might be happening already).
August 13th, 2008 at 9:09 pm
Interesting article on the subject:
http://online.wsj.com/article/SB121677287690575589.html
Money quote:
According to the figures, the richest 1% reported 22% of the nation’s total adjusted gross income in 2006. That is up from 21.2% a year earlier, and is the highest in the 19 years that the IRS has kept strictly comparable figures. The 1988 level was 15.2%. Earlier IRS data show the last year the share of income belonging to the top 1% was at such a high level as it was in 2006 was in 1929, but changes in measuring income make a precise comparison difficult.
The average tax rate in 2006 for the top 1%, based on adjusted gross income, was 22.8%, down slightly from 2005 and the fifth straight year of declines. The average tax rate of this group was 28.9% in 1996, and was 24% in 1988.
As the wealthiest Americans’ share of income has risen, so has their share of the income-tax burden. The group paid 39.9% of all income taxes in 2006, compared with 27.6% in 1988. In the most recently reported five years, however, the share of income reported by the very wealthy has risen faster than the group’s share of income taxes.
August 13th, 2008 at 9:48 pm
inthewoods did the research, which said: he share of income reported by the very wealthy has risen faster than the group’s share of income taxes.
There’s our after tax result. Therefore, the pre-tax chart still works as a visual reference of the trend.
I don’t give a rat’s okole what a Libertarian’s take on it is, since the response will just rehash the doctrine. I don’t feel bad if the top 1% are paying a major share of the taxes, since those taxes pay to run the republic that makes their success possible.
I do care if the top 1% are sucking up a greater percentage of the pie, since this wealth in turn buys a disproportionate share of their interests tended to at the local/state/Federal level.
August 13th, 2008 at 9:51 pm
The chart seems strongly correlated with stock market performance, at least in the past few decades
August 13th, 2008 at 10:02 pm
I don’t have a pitchfork, but I do have a gun!
Apropos of nothing, don’t ya just love those pretty (but sterile) little republican pundettes? I especially like the brunettes. Let’s picture all of them oiling and whipping Mitt Romney’s hairless naked ass.
August 13th, 2008 at 10:29 pm
Yeah, I actually don’t care all that much about the pre-tax income share of the top 1%. I do think their average tax rate should be a bit higher (nothing punitive–something like that 28.9% from 1996 seems reasonable to me). I also care about how the rest of the distribution is doing in real terms. But not this figure per se.
August 13th, 2008 at 11:03 pm
Why do you show the inequality in the pre-tax distribution of income, and then recommend fixing the problem by changing the tax rates. This makes no sense.
Matthew’s posts on economics frequently don’t make much sense, but yes, this one is especially silly.
August 13th, 2008 at 11:14 pm
cmholm,
inthewoods did the research, which said: he share of income reported by the very wealthy has risen faster than the group’s share of income taxes. There’s our after tax result.
Actually, the WSJ piece concludes:
So part of that after-tax increase for the top 1% may simply represent changes in reporting practises rather than a true increase in income. And a larger part is probably the result of globalization and trade policy, not tax policy.
Which is really the more important point. The basic drivers of growing economic inequality are broad trends in technology and trade that are relatively independent of which party is in power. Any politically feasible changes in federal tax policy amount to fiddling around at the margins, and are not likely to stop the long-term trend of growing inequality.
August 13th, 2008 at 11:26 pm
Why do you show the inequality in the pre-tax distribution of income, and then recommend fixing the problem by changing the tax rates. This makes no sense.
You need the pretax info to have a baseline from which to make policy. You need pre- and post-tax info to gauge the effect of policy.
August 14th, 2008 at 1:04 am
I’m a “supposed libertarian,” and I say eff the wealthy. If those rich folks, who pour dollar after dollar into campaigns and lobby efforts, are unable to control the government enough to prevent disproportionate taxes on their extraordinary wealth, what concern is it of mine? Obama’s proposing a middle-class tax cut. Sounds good to this guy.
The old get old, the young get stronger…
August 14th, 2008 at 4:57 am
We should keep in mind that the top 1% income earners (earning $388,000 or more) pay 40% of all income tax revenues. The top 5% income earners (earning $153,000 to $388,000) pay 60% of all income taxes, and the top 10% (earning $108,000 to $153,000) pay 70%.
Are you deliberately ignoring the effect of sales taxes and all other non-income taxes? Because that alters things quite a lot, you know. The income tax is far more progressive.
August 14th, 2008 at 7:00 am
“The chart seems strongly correlated with stock market performance, at least in the past few decades”
Yes, that’s because the top 10% own something like 60% of the stocks. Which means that a capital gains tax rate of 15% of the Bush presidency also helped them along.
So part of that after-tax increase for the top 1% may simply represent changes in reporting practises rather than a true increase in income. And a larger part is probably the result of globalization and trade policy, not tax policy.”
That’s the opinion of one economist. I used the article for the IRS data. Other economists do not agree.
August 14th, 2008 at 10:08 am
ajay, the rational for omitting sales tax is simple, it is a function of States and localities, not the federal government, so it isn’t relevent to a discussion on the federal response to income inequality. Payroll taxes however are relevent, but many liberals preach that SS is a social insurance program. Therefore to be consistant in the liberal mind, FICA is not the regressive tax I consider it to be, but simply an insurance premium.
If partisan politics is a factor in all this, it looks like inequality skyrocketed in the last half the the 1990’s. Is it fair to blame Clinton?
August 14th, 2008 at 11:25 am
If partisan politics is a factor in all this, it looks like inequality skyrocketed in the last half the the 1990’s. Is it fair to blame Clinton?
Certainly he contributed to this, but it starts with Reagan and then accelerates from there.
http://en.wikipedia.org/wiki/Image:Gini_since_WWII.gif
August 14th, 2008 at 11:29 am
Does it not make more sense to use after tax income + benefits (compensation) rather then use before tax data sans benefits? Unless of course, the point is to present a one-sided case for Democratic talking point A rather than a logical, honest discussion. Also, Econotarian nails it.
August 14th, 2008 at 11:50 am
Does it not make more sense to use after tax income + benefits (compensation) rather then use before tax data sans benefits? Unless of course, the point is to present a one-sided case for Democratic talking point A rather than a logical, honest discussion. Also, Econotarian nails it.
Pretty tough to figure that out – I’ve never seen a study that shows the data. The other thing I would point out is that people on the low end of the scale tend to not have benefits provided by a company – so I guess we could look at Medicare.
Even given all that, it’s pretty clear that the gap has widened. Now, was this a consequence of the tax policy? Hard to not look at the correlation (note: not causation) between tax policies and the widening gap.
Add to that flat wage growth (during a period of exceptional company profits growth) and our government printing money like mad to fight two wars without raising taxes (aka extreme inflation) and you get a pretty strong picture of class warfare.
August 14th, 2008 at 7:20 pm
Yes… The top 10% pay approximately 70% of the tax revenues. Facts are facts.. However, isn’t the bigger question how much of the taxable revenue for the USA do the top 10% earn? Essentially, what is the ratio of tax revenue to earnings for the top 10% and how does that compare to everyone else?
August 14th, 2008 at 10:13 pm
inthewoods,
That’s the opinion of one economist. I used the article for the IRS data. Other economists do not agree.
Which ones? Show me where other economists have expressed a view on this particular question.
Certainly [Clinton] contributed to this, but it starts with Reagan and then accelerates from there.
So Clinton didn’t start the trend of growing inequality, but he accelerated it.
August 15th, 2008 at 10:39 am
Which ones? Show me where other economists have expressed a view on this particular question.
Here’s a good summary of the debate:
http://time-blog.com/curious_capitalist/2008/06/the_strange_fantasy_world_of_t.html
So Clinton didn’t start the trend of growing inequality, but he accelerated it.
Yes, what’s your point? That a Dem contributed to the issue?
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