Thomas L. Hungerford on rising inequality due to tax policy

Abstract:  
This paper examines changes in after-tax income inequality among tax filers between 1991 and 2006. In particular, how changes in wages, capital income, and tax policy contribute to changes in income inequality is investigated. To examine the role of these three possible contributors to the increase in income inequality, the Gini coefficient is decomposed by income source using the method developed by Lerman and Yitzhaki (1985). The Gini coefficient of after-tax income increased by 15 percent (0.071 points) between 1991 and 2006. By far, the largest contributor to this increase was changes in income from capital gains and dividends. Changes in wages had an equalizing effect over this period as did changes in taxes. Most of the equalizing effect of taxes took place after the 1993 tax hike; most of the equalizing effect, however, was reversed after the 2001 and 2003 Bush-era tax cuts. Similar results are obtained with other inequality measures.
SSRN

Changes in Income Inequality Among U.S. Tax Filers between 1991 and 2006: The Role of Wages, Capital Income, and Taxes
Thomas L. Hungerford — January 23, 2013

Waiting for the Confidence Fairy

Sorry, but it's time to raise taxes on $250k and up. It shouldn't only be the middle class and poor who get tax increases!

Obama is calling for the extension of the Bush Tax Cut, but only for those with incomes below $250,000 and of course the Republicans are saying that the tax cuts should be extended for everyone--including millionaires and billionaires--or no one at all.

This is the typical Republican position and it should be noted that they care little about people earning the threshold $250k; their real interest is in protecting the super wealthy. They made this clear a million times and I don't think anyone but the timid Democrats in the Senate really believe them when they try to pull this bullshit "all-inclusive" stance. It's all about protecting the rich and that's it.

As an MMT adherent I am fully aware that taxes don't fund spending and that they only serve to regulate demand yada, yada, yada, and I am also aware that with a large output gap, raising taxes on anyone just works to sustain that output gap so long as that "revenue" is not recycled back as government spending in some form.

However, as a matter of equality and PRINCIPAL I think it's about time somebody other than the poor and middle class see their taxes go up. That's right, I said the poor and middle class have had their taxes increased--BIG TIME!

It's time we all begin to learn a fundamental lesson, that spending cuts are the fiscal equivalent of tax increases and the bulk of the spending cuts (tax increases) over the past several years have been targeted at the middle class and poor.

Whether you are talking about cuts in education, Medicare and Medicaid, food and nutrition, Veterans benefits, social programs, public safety (fire, police), you name it...there has been an unrelenting and rising stream of tax increases aimed at middle and lower income people. All the while, the rich have been getting tax break after tax break along with a larger share of national income and wealth. Like Warren Buffet said, it's outright class warfare and it's HIS class that is winning.

Nor should you buy the bogus argument that the rich are the "job creators" or "wealth creators." That's just a completely hollow and ridiculous claim and one that we've debunked here numerous times (here, here, here). The fact is, a vast portion of the income of the wealthy comes from extracting wealth from assets...assets that they did not create. Gordon Gekko said it right, when he said "I create nothing. I own." And he said that 25 years ago!

The rich don't educate our kids, keep our streets safe, protect property from fire and damage, fix roads and bridges, heal or care for the sick and infirm, stock store shelves or perform any of the other myriad types of work that essential in a modern, smooth-functioning society.

And while $250k may not be a lot to some people, those who do earn at that level or above are also not performing the tasks I mentioned above. Moreover, many of them are politically favorable to the "pro-spending-cut" menatality, which as I said is the same thing as calling for a tax, except it's not a tax on them, but on poor people.

Well, it's time for these folks to get fiscally "educated" or feel some pain, too! Obama should stick to his guns this time. He should stand fast on the call for higher taxes on $250k or more. People need to learn a lesson. The stakes are too high. We cannot have a greater and greater percentage of national wealth stripped away from the very people who built it, maintain it, and paid for it. It's outright theft. So be it if the economy crashes (and it won't, expect maybe for high end real estate brokers). Maybe out of the ashes we have a chance to build something better.

Enough already with the, "business is not spending because they're afraid of Obama's policies," nonsense.

The chart below shows the change in Gross Private Domestic Investment (equipment and software) covering Reagan, Bush I, Clinton, Bush II and Obama. Figures are in $ billions. As you see, capital spending under Obama surpassed all other presidents with the exception of Clinton (but Clinton had the internet boom and Y2K). The two worst periods were under both Bushes and Bush II had the lowest level of business investment despite a supposedly more “business friendly” environment. The claim that businesses are not spending under Obama is not borne out by the numbers.