Tuesday, September 18, 2012

Slicing the economic pie: Why the rich get fatter

Posted By on Tue, Sep 18, 2012 at 5:29 PM

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.

 

 

More by W. Kim Heron

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