Deliberate and ….
Chart of the Day: America’s 30-Year Project to Make the Rich Even Richer – Here’s a remarkable chart from EPI.. (hat tip rjs)
Actually, no: Strike that. It’s true that in a normal world it would be remarkable, but in the world we live in it’s actually totally unsurprising. It illustrates the rise in income inequality over the past three decades (top dark blue line), and as you can see, it’s been rising steadily. Totally unsurprising. But then author Andrew Fieldhouse did another calculation. The middle blue line shows rising inequality after you account for taxes and transfers. But what if we had the same tax system we did in 1979? Well, inequality still would have gone up, but it would have gone up significantly less (bottom light blue line). In other words, during an era in which the rich were getting richer anyway, we deliberately set out to reduce their tax burdens so that they could become even richer.
There is a principle in medicine… Every medicine is a poison if taken beyond the safe dosage. Supply-side is a medicine if taken properly, but it has become a poison.
Fieldhouse’s argument probably is stronger, and perhaps considerably stronger, than he thinks. In his analysis, he necessarily assumes that pre-tax income distributions were not affected by the changes in income taxes after 1980. His conclusion that “inequality still would have gone up” (had the tax law not changed) is as solid as that assumption. It’s more likely that pre-tax income inequality shot upwards because of the income tax changes–if so, Fieldhouse is overestimating the inequality growth that would have occurred without the tax system changes.
Is this just relative? If you tax a rich person more their take home pay drops relative to the lower income person. But, do the lower incomes rise? Because if they stay the same, then this chart is really meaningless. And as was pointed out, it shows that the inequality is rising despite taxes – so maybe there is a more important mechanism we need to be focusing on. We just raised taxes, and lower income folks are still suffering.