Speaking of inequality
Travis Waldron at Think Progress pointed out this excellent article by David Cay Johnston. It dovetails well with my last post, which showed the fall of individual real wages and their failure to regain their peak fully 40 years after it was reached.
Incomes and tax revenues have grown from 2009 to 2011 as the economy recovered, but an astonishing 149 percent of the increased income went to the top 10 percent of earners.
If you wonder how that can happen, the answer is simple: Incomes fell for the bottom 90 percent.
While this data is at the level of tax filing households, it is consistent with what we see at the level of the individual. More nuggets from Johnston:
From 1966 to 2011, adjusted gross income in the bottom 90% grew a total $59 (2011 dollars, not the 1982-84 dollars I used in my last post) in 45 years, from $30,378 to $30,437.
“Candidate Bush said his tax cuts would make everyone prosper. But the real average pretax income of the bottom 90 percent in 2011 was $5,340 less than in 2000, a decline of more than $100 per week, or 15 percent, in pretax income.”
The income share of the bottom 90% fell from 66.3% to 51.8% over the 1966-2011 period.
So we have seen inequality increase in pretax income plus changes in tax policy that have reduced the effective tax rates on corporations and capital gains, income which goes overwhelmingly to the rich. Thus, post-tax inequality is even worse than pretax inequality.
Johnston’s report builds on the work of economists Emmanuel Saez and Thomas Piketty. Together with Facundo Alvaredo and Tony Atkinson, they have created the World Top Incomes Databases, very much worth checking out for a comparative look at U.S. inequality.
Cross-posted at Middle Class Political Economist.
I quite frankly don’t see what the supposed big mystery is about with pretax versus post tax income inequality. The 1% are people who can to a large degree chose their pretax income.
Think about, if income taxes go down most of these people can simply chose to take more money out of their business as income. And those that are employees will start clammering for a raise. And it being that they work in highly competitive environments (Why else would they be so highly paid? Think Wall Street.) they can credibly threaten to go work for the competition.
And the same goes for interest and dividends. The 1% can simply pay out more from their companies to themselves in interest or dividends. Or, being a large investor, call up the executives and/or people on the board and demand more money or they’ll invest somewhere else.
A good recent example of what I’m talking about is when Nicolas Sarkozy reduced income taxes on overtime hours in France to get people to work more. Predictably, most people didn’t change their habits but all of a sudden doctors, lawyers etc. started claiming lots of hours as “overtime”.
It’s not just income taxes that should be considered when looking at the inequality. Property taxes are the next big issue.
With the long term fed budget cuts over the years coupled with the state cuts to taxes, town/cities etc have become more reliant on what revenue they can generate locally. That means tax increases.
Property tax increase the inequality gap as it is just one more tax medium used by the rich to offset paying the proper price for all the government services they use and receive benefit from.