CBO data on taxes and income

CoRev asks if anyone wants to discuss the justifications of the beneficiaries of the different parties policies. So I though this gives me an opportunity to present some recently published
CBO data on income and tax that could give people something to tie the discussion to.

Republican policy has been to favor the more affluent in our society and justifies it with the claim that increasing the wealth and/or income of the “investor class” will make everyone better off — a rising tide lifts all boats. If this worked I would strongly support such policies.

But look at what this data shows has happened between 1979 and 2007. This is a good set of dates for comparisons because it is essentially a peak to peak comparison from just prior to the 1980-1982 double recession and the current recession. Moreover, it is an era dominated by the Republican policy of tax cutting and the investment boom of the 1990.

First, as everyone knows this has been an era of a great surge of income inequality driven both by natural economic forces — the winner take all economy — and tax policy.

The net product of this 30 year era was a shift of about ten percentage points of the economic pie from the bottom four quintiles to the top quintile.

This shift in the share of income share by the top quintile has also generated a significant
increase in the share of taxes paid by the top quintile.

But the shift in the distribution of the tax burden is due entirely to the growth in income
rather than a shift in tax policy as the average effective tax rate paid by each quintile has fallen. Actually, on a proportional basis the lowest quintile had the largest drop in its tax burden.

The federal tax burden is quite progressive as the last chart shows. But in general state and local taxes such as sales taxes and property taxes are much more regressive, so the total tax burden is much less progressive than this chart implies.

If this shift in income to the top quintile had generated the increase in savings and investment and generated widely shared prosperity it would be a good thing, and the
greater income inequality would be a fair trade-off for greater growth.

But the actual results since the early 1980s has been a significant slowing of economic growth and a drop in private savings– just the opposite of what republicans and economic theory says would happen. Rather the results has been that since the early 1980s the US has increasingly lived beyond it means and ran up a major foreign debt to finance this consumption binge. The two major drives behind this shift in the US has been the Reagan and Bush tax cuts.

So I’ll take on CoRev and argue that the reason I oppose Republican policies is that they have been a complete and utter failure to deliver the results they promise. They have just ran up a massive foreign debt to finance our living beyond our means and now blame Obama because he has failed to reverse the adverse impact of the failed republican policies.

Supporting the republican “starve the beast” strategy reminds me of the comment I use to make back in the early 1970s that if Arthur Burns — the Fed Chairman — was a friend of business, business did not need any enemies.