Slicing the economic pie: Why the rich get fatter

September 18, 2012
By

If you aren’t among the 47 percent of Americans Mitt Romney considers to be freeloaders who will support Barack Obama no matter what (check out the video, obtained by Mother Jones magazine), and are instead one of the undecided Mitty must attract in order to win come November, we want to direct your attention to a report issued last week by the nonpartisan Congressional Research Service.

Looking at the top income tax rates in place since 1945 and then trying to figure out how the country’s economy has fared as those rates have been cut over the years, analyst Thomas L. Hungerford has concluded that the trickle-down theory held so dear by conservatives is basically a fairy tale.

OK, that’s our interpretation. But we think it is a fair one.

From the report:

 The top income tax rates have changed considerably since the end of World War II.  Throughout the late-1940s and 1950s, the top marginal tax rate was typically above 90 percent; today it is 35 percent. Additionally, the top capital gains tax rate was 25 percent in the 1950s and 1960s, 35 percent in the 1970s; today it is 15 percent. The average rate faced by the top 0.01 percent of taxpayers was above 40 percent until the mid-1980s; today it is below 25 percent. The rates affecting taxpayers at the top of the income distribution are currently at their lowest levels since the end of the second World War.

If the conservatives are correct, cutting taxes on the richest should have created a tide of prosperity that lifted all boats. What’s really happened, though, is the yacht-owning class has been the group that’s really seen it’s financial good fortune swell.

Put another way, Hungerford says that there appears to be no correlation between cuts in the top income and capital gains tax rates and the “size of the economic pie.” Instead, the apparent correlation seems to be between tax cuts for the rich and their increased affluence.

“As measured by IRS data,” Hungerford reports, “the share of income accruing to the top 0.1 percent of U.S. families increased from 4.2 percent in 1945 to 12.3 percent by 2007 before falling to 9.2 percent due to the 2007-2009 recession.”

So, while handing out tax cuts that disproportionately benefit the very rich  doesn’t appear to affect the overall size of our economic pie, there does seem to be a relation between that tax policy and how the pie gets sliced, with the very wealthy getting a much bigger piece as a result of receiving massive tax cuts.

Chew on that for a while.

 

 

  • Anonymous

    Romney liked France when he was dodging the draft.
    Why doesnt he like the new 75% tax that France put on millionaires?

    If it is o;k that once you make over $250,000 to 1 MILLION, you only have to pay $5000 then why is it o.k for someone only making $25,000 to pay $5000?

    After a decade of BUSH tax cuts, it is time to exempt ALL making under $75,000 from paying ANY income tax, except for SS and medicare and it is time to tax everyone for SS and Medicare on ALL income.

  • alanmadlane

    There’s one time the super-rich can’t hide their money, and that’s when it comes to buying the super-expensive shit they love to get themselves. Therefore, the country needs to set up a two-part system for sales tax: All items generally seen as essential (car, e.g., although this is more essential in some cities than others): Set $20,000 as the base, below which, 5% sales tax (say); every step above this, a new higher rate (therefore, if someone is buying a Lamborghini for $225,000, it’s taxed according to a much higher percentage; also, inescapable customs on expensive stuff brought in from outside the country). Eating caviar? Not essential. High sales tax. Drinking a $100,000 bottle of champagne? High high sales tax. And so on. Sure, they may try to smuggle some stuff in, but that happens anyway. If they get caught — mandatory prison terms.