Wealth Inequality In US Grows

By Justin Gardner | Related entries in Economy, Money

When I hear about “class warfare” and how it’s unfair to have a progressive taxation system that relies more on the wealthiest citizens, well, it’s hard to take those opinions seriously. The rich are indeed getting richer. Much, much richer. And the middle class and lower income folks continue to see their percentage of the overall percentage of our collective wealth drop year after year.

Take a look…

Wealth Distribution in US


Let’s consider this for a moment…the amount of people in this country that make up the top 10% of income earners are roughly 6.6M. That’s 2.2% of the population having roughly 70% of the wealth. Compare that to the other side of that coin, 150M only hold 2.5% of the wealth. Put together, those facts pretty much say it all.

So why this historical disparity?

Well, the lack of income growth tells part of the story…

Real Average Earnings The Past 50 Years


As does the gap between executive pay, corporate profits and blue collar pay.

CEO Vs. Production Worker Pay

And then there’s stock ownership…

Stock Ownership in US


That’s right. Less than 3% of the people in the US own over 90% of the stock.

So, tell me what you think? Any way to turn this around?

More at Business Insider.


This entry was posted on Saturday, April 10th, 2010 and is filed under Economy, Money. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.

48 Responses to “Wealth Inequality In US Grows”

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  2. Chris Says:

    Well i for one would like to scream about how unfair it is to tax the wealthy. clearly we should give them more tax breaks so they hold at least 90% of the wealth. I mean it works great in Egypt, look how prosperous they are!

  3. bubbaquimby Says:

    I am not sure what the solution is but I also don’t think it’s fair that 47% of Americans don’t pay any federal income tax. Now maybe that is a symptom, I don’t know.

  4. Mark Gardiner Says:

    One key to preventing an actual revolution, in which the common man (and woman) storm Wall Street with pitchforks, is that the richest 1% have convinced enough poor sods that, although they’re poor now, they might be rich later.

    I guess hope springs eternal (or perhaps infernal) as the American “working” class continues to allow legislators to undertax the rich in the forlorn hope that, some day they too might be in that position.

    In fact, as this evidence shows, it’s increasingly likely that people of average income will become relatively poorer, not richer.

    For more than a century — from the end of the Civil War, through the rise of U.S. industrial might, until we were Wal-Marted, outsourced, and bushwhacked by the trust-fund set — the “American Dream” was something people in other countries could only dream of, but it was real, and _realistic_ for us. Sad to say, now it really is just a dream.

  5. Crawford Kilian Says:

    This is a political issue whose time should have come by now. I try to deal with it intermittently on my blog Bridging the Income Gap, where the emphasis is on the social and public-health consequences of income inequality. An enormous scientific literature exists on the subject, but it has yet to register with most North Americans.

  6. Miles Says:

    I think you have mixed income and wealth in parts of this, especially in the 2nd paragraph. There’s a Saez paper floating around that has the top 10% of income earners taking in about 50% of the income these days (the top 1% take about half of THAT subset, an interestingly fractal result).

    I don’t disagree with your point on progressive taxation, though, but the article would be stronger if this were cleaned up. Also, can we get sources for those scary pie charts? (P.S. does bottom 50% of wealth include all the people with negative net worth? That would certainly skew them down to a low total. But it makes the pie chart a weird choice of presentation… A histogram might be better.)

  7. gerryf Says:

    bubba,

    So, let me get this straight, when the Right says we should cut taxes and cuts taxes on the rich, it’s good?

    And when the Right enacts a tax rebate, that was good?

    And when the Right enacted massive tax cuts under Bush, that was good?

    But when the left cuts taxes for the middle and low income people it’s bad?

    Well, if it will make you feel better, you can always take solace in the fact that the information you have been fed by the right wing media machine is either wrong or innacurate.

    You see, the number you have been hearing about 47 percent of Americans not paying taxes is a result of $237 Billion in tax cuts and credits as part of the American Recovery and Reinvestment Act of 2009 and many of those sunset after 2010.

    You see, despite the right screaming about “class warfare” and the need for tax cuts, when Obama and the Dems actually CUT taxes (just not for the wealthy) it’s now somehow a bad thing. And don’t worry, while many low and moderate income people are not paying federal income taxes this year they are still paying lots of other taxes.

    Hmmm……seems like class warefare has been declared–by the Rich against the poor. Never have I heard such whinning from the wealthy about a tax cut….

  8. Miles Says:

    Forgot a point on income inequality: there’s a study (and I apologize for forgetting the source) that says a decent portion of the increasing inequality in HH income is due to dual income households with two high earners. Basically, there are more high-earning women now then there used to be, and they tend to marry men who are also high earners (no surprise).

    The net effect of that math is to increase the disparity in HOUSEHOLD income versus back in the 50′s and 60′s.

    Don’t get me wrong, I support progressive taxation (after all, if you want to collect a tax it needs to be on people who make money!) But the hullabaloo about increasing disparity may not be a big deal (for this reason and all the other usual ones: robots replacing industrial workers, increasing knowledge worker productivity due to IT, etc.)

  9. Miles Says:

    bubba + gerryf: Also regarding that 47% not paying taxes – well, that’s just federal income tax. Fear not, they still get hit hard by FICA.

    And I assume you know the Social Security tax is regressive as it only counts on the first $97K of income or so, at which point you pay no more tax. Oh, your marginal federal rate goes up slightly, but not enough to make up for that 6%+ that was going out to Social Security! Yup, net federal withholding basically takes more from the low earners than the better off – ouch.

    [apologies for the numerous posts, this just happens to be a topic I know well.]

  10. bubbaquimby Says:

    Gerry,
    I would answer no to all three of those. But I am not a spend and eat the rich liberal. I actually expect to pay taxes for things even as a lower middle class tax payer. But not suprisingly you jumped to the conclusion I am a dido-head conservative. Must be nice living in a black-white partisan world there Gerry.

    I specifically said federal income tax Mike. I am fine with lower income paying net zero, just don’t think it should be 47%. I also don’t want us to go back to Eisenhower days of 92% for top earners but I have no problem going to say 45%.

  11. Amy Says:

    It boils down to the function of gov’t. It is not the govt’s job to redistribute money. Period.

  12. Frank Hagan Says:

    That’s right. Less than 3% of the people in the US own over 90% of the stock.

    Huh? The way I read that chart, 50% of private stock ownership is held by those people in the top 1% of “something”; I would expect as much since nearly all of our billionaires got that way due to the performance of their companies, and they remain heavily invested in them. Along the way they have made a lot of other people rich. But the top “1%” of what … stock holders? Income? It isn’t clear from the chart.

    The next category is the “90 – 99 Percentile” … and that would normally not be a percentage of the population, but those earners in the 90 to 99th percentile of income. If it WAS population, then the statement would be that the top 10% of the population owns 90% of the stock.

    The pie chart indicates that 90.9% of the wealth is held by those in the top 10% of something, but its not clear that its the top 3% of population.

    Justin, what is the source of this chart so we can tease out the population numbers?

    Quintiles are usually used to divide up the income and then find out how many people are in that quintile. Its not a 20% split between quintiles. For instance, in 2006, nearly 30% of households fell into the first quintile. 27% were in the second quintile, and the third quintile had 18%. In other words, just under 75% of the people fall into the first three quintiles of income.

    The rich households, starting at about the top 25% of income, starts at $75,000 per year. That’s HOUSEHOLD income … two incomes, for most households, as 80% of these households are held by married people. Is it your position that these people should be taxed more, as their income is extremely high compared to the rest of the country?

    Source: Wikipedia

    The problem with taxing the rich is that pretty soon you realize the definition of “rich” depends on who is taking, and who is receiving.

  13. Shane Says:

    Effective tax rates of 2006 from the CBO.

    http://www.cbo.gov/ftpdocs/100xx/doc10068/effective_tax_rates_2006.pdf

    On page 4 you will find a table cutting up the tax revenues for that year. Justin, you were concerned that the top 10% of the income earners have 70% of the wealth. Looking at the CBO’s numbers, we see that those same 10% have 72% of the income tax burden – a surprisingly balanced number. What is scary about that number is that the minimum AGI is 98K. If we extend to the top 20% (highest quintile), that group has 86% of the individual tax burden. 20% carrying the water for 86% – how much higher does that number have to go to become fair?

    Now we can all discuss what we think is fair, but lets have the moral discussion first. Why do we think that we can take more money from people just because they have it? Where is that line? I realize that there are plenty of idle wealthy in that top 5% and 1% groups that didn’t create their own wealth, but what is the justification for taking it?

    Finally, gerryf, if you follow the link through you’ll find that in 2006, the bottom 40% contributed -3.6% (yes, negative) of the individual income tax share and it had absolutely nothing to do with an act that is passed 3 years later. The next quintile is 40-60% and still only at 4.4% so the the point at which it becomes positive is very likely 47%.

  14. Mike A. Says:

    “It boils down to the function of gov’t. It is not the govt’s job to redistribute money. Period.”

    Wrong. Unless you believe the government should not be responsible for the basics. In the most basic form, our defense (military) is a tax redistribution..money collected to protect all…not just those who can afford their own militia. Same goes for the police, firefighters, education, centralized water treatments, highway system, etc, etc, etc.

    So don’t drive on our roads, don’t ever call the police or firefighters, take your kids out of public schools, drill your own well, generate your own electricity, get off the internet. Do that, and you and Ted Kaczynski then have the right to comment on the evils of redistribution of wealth through tax policy. Period.

  15. gerryf Says:

    Thank you Shane, I will give that a read.

    And when we talk about the redistribution of wealth, we also need to consider who benefits the most from that. A knee jerk reaction from some is that people who pay less are getting more back, but consider that without the infrastructure we all put in place, the wealthy would not so easily be able to acquire wealth.

    We don’t just use the road paid for with tax dollars for each of us to drive on. We use the road to drive to the football stadium so that we can give the wealthy owner money to see his product. The wealthy store owner uses the road to ship the product to his store so we can drive there and buy it. There are gains to be had outside of just an individual driver.

    I am not against the wealthy, but I am for a progressive tax system based on taxes paid for benefits derived from the commons. For more than 30 years we have slowly rewritten tax laws and policy to the benefit fo the wealthy as is clearly shown when one looks at the distribution of wealth.

    What made this country great was a strong middle class; what is ruining this country is the distribution of wealth upward.

  16. Josh Cowan Says:

    First I’ll echo @miles.

    Secondly, I don’t think the question is whether any income inequity is bad, I would argue that for a healthy economic/social system there needs to be mobility up, down and sideways meaning income inequity would be a part of any healthy system. the question is whether the current levels of income or wealth inequity are harming the system? How much inequity there is in the system is, for me, looking at one metric amongst many.

    I’m for redistributionist tax policies only if they are in service of “growing the pie”. Further, I believe growing the pie means increasing the complexity of the system so that there are multiple potential niches for any given individual’s constellation of strengths and weaknesses, while empowering individuals so they can take advantage of the niches and add to system complexity. I recognize that there is a long history of government programs that dis-empower the individual but I believe that’s a program design issue not a philosophical impossibility. We also want to grow the over all size of the system so there is a system wide increasing and growth of complexity.

    Or, to be a little less theoretical, in addition to income inequity we need to also look at metrics like social mobility, change in living standards both relative to what they were as well as relative to other levels of the system… I believe in redistribution as a means of paying for system strengthening mostly because I assume that’s where we’ll get the most bang for the buck (least harmed, most helped, opportunity costs…). Having said all that, I also am quite sympathetic to @Shane’s point. There is a point where soaking the rich will, either do direct systemic harm through opportunities foregone or the taxes will lack of facial validity or just because it’s easier to take then create.

    I guess what I’m saying is that I suspect income and wealth inequity is a problem but it’s only one metric and I’m not sure I can judge if it’s askew to the point where in and of itself, income/wealth inequity should be addressed.

  17. Jim S Says:

    Josh,

    Would growing the pie include better access to higher education? How much is the crushing debt of student loans distorting where talented graduates can afford to work? You can get a massive debt studying for a career in engineering, any of the sciences or in IT and not be making a huge salary on graduation. Wouldn’t an expansion of grants, possibly targeted to some fields and with accountability for academic status be a good idea even if it increased our debt in the short term?

  18. Nick Benjamin Says:

    Now we can all discuss what we think is fair, but lets have the moral discussion first. Why do we think that we can take more money from people just because they have it? Where is that line? I realize that there are plenty of idle wealthy in that top 5% and 1% groups that didn’t create their own wealth, but what is the justification for taking it?

    Mostly it’s that they benefit from government services disproportionately. To take it to a ridiculous extreme, how much worse off would somebody with no money be if the US government collapsed and the dollar became worthless? Contrast that with someone whose got lots of wealth in US Dollars.

    Taken to a smaller extreme it’s very clear the rich benefit more from the government then the poor. Roads, for example, are useless to people who can’t afford cars. Without the FAA there’s no jet-set. Without good public schools the literacy rate is a lot lower, which means any rich person whose business requires literate employees just saw labor costs skyrocket. The wars in Iraq and Afghanistan haven’t benefited the poor very much, but the guys who own factories making bullets sure cleaned up. In my old neighborhood almost no poor people ever benefited from a national park.

    Note that, morality aside, without relatively high taxes on people with high incomes those people have a lot of wealth to pass on to their children, which leads to Paris Hilton syndrome. The only other way to prevent that is high Estate Taxes.

  19. Nick Benjamin Says:

    The first paragraph is supposed to be a quote, but goddangit I’ve forgotten how quotes work.

  20. Miles Says:

    @shane: that CBO doc is very interesting, thanks for the link.
    Given that the top 10% earn about 50% of the income, isn’t it odd there is not more progressiveness to the tax code within that range? That CBO data says that the top 1% – who earn about as much as the next 9% combined – pay a very similar tax rate. Actually slightly lower if you remove the corporate tax which seems inappropriate in the chart.

    Basically, look at tax rates against share of total income earned, and you will find it very granular and progressive in the bottom half (where there are lots of people earning little) and very flat in the top half. Personally, I think it’s reasonable to make the code more progressive in that top half as well.

    It’s a smaller group of people, so no one typically bothers to split open that 10%, but so much of the earning happens in that range that it deserves more attention and a broader range of tax outcomes. (IMHO)

  21. kranky kritter Says:

    We can certainly increase tax rates on rich folks somewhat, if we want to. Doing so based on some sort of equity or fairness or social justice argument is at least defensible.

    But there’s a really big BUT. Because of the numbers and the way income is distributed, we really shouldn’t expect such changes to make that big a difference in improving the plight of lower income folks. The numbers are pretty inexorable here. We could eat the rich for awhile, but there just aren’t enough of them to go around for very long.

    There are too many low income folks for us to think we can tax them into prosperity, or even substantially better plights. IMO, it’s not as important to feel good about some symbolic message that the tax codes sends as it is to keep collecting data and trying to optimize the rules.

    And leaving aside the moral arguments about what’s just for who, the data truly does tend to show what kinds of behavior we’d get if we really jacked up taxes on the rich. We’d see capital flight under a real jacking up. And anything beyond tweaks would quite possibly lead to unpleasant economic side effects. Motivation and incentives really do matter. I wish we could all agree to stop pretending they don’t.

    When JFK was President, the top marginal rate was 70%, which is pretty shocking. And now with much lower marginal rates and way more loopholes, I think it can be argued creditably that maybe we have gone too far in some respects (only of course if you support the current nature and extent of the American safety net, and I basically do. If you’re an “every man for himself” proponent, then obviously you have a different take.

    The top marginal rate now is I think 36% or thereabouts. On principle, I think I can support the idea that even the most taxed American deserves to keep more they government takes, and 36% means you get to keep just under twice what the government takes. (plus state taxes, of course). That’s my mileage. The idea that there’d be a circumstance under which the government would end up with more of an individual’s income than the individual kept feels troubling to me.

    Instead of targeting things like marginal rates, I’d be more down with some sort of circuit breaker rule that makes it harder to avoid paying something substantial. Some sort of rule that went “no matter how many deductions and exemptions you have, we’re taking at least 20% of the first income number you entered, if you income is in say the top 5 or 10 percent.

  22. kranky kritter Says:

    Taken to a smaller extreme it’s very clear the rich benefit more from the government then the poor. Roads, for example, are useless to people who can’t afford cars. Without the FAA there’s no jet-set. Without good public schools the literacy rate is a lot lower, which means any rich person whose business requires literate employees just saw labor costs skyrocket. The wars in Iraq and Afghanistan haven’t benefited the poor very much, but the guys who own factories making bullets sure cleaned up. In my old neighborhood almost no poor people ever benefited from a national park.

    I think this a foolish, inflammatory argument. But I’m not going to debate it since I don’t think it can be settled when one person is sure that “it’s very clear.”

    So I’ll just point out that the biggest annual costs in the federal budget are social security and medicare. I’m sure that any clever sophist could explain to us why these programs are really more beneficial to rich people. After all, that money eventually ends up in the pockets of stockholders and wealthy doctors and so on and so forth. game, set, match. Right?

  23. Chris Says:

    I think it’s practically impossible to discuss macro-economics over the internet such as this, we could argue that SS keeps people spending well into their retirement years, so it does in fact help the top of the pyramid, or end of the money funnel as I like to call them.

  24. Shane Says:

    @Nick,

    It is tough to work out a hypothetical such as you framed it, but let me add some points for thought. A dollar collapse has a much more devastating effect on those who are dependent on income (vice wealth) and who are trying to make it from paycheck to paycheck. The sinking purchasing power would be game ending for those barely making it on the current value of the dollar. Compare that to the rich whose wealth exists in the instruments of power. They have real estate, gold/silver holdings, advanced financial tools for moving their resources quickly, foreign currency holding (think Swiss bank accounts). Most importantly the rich have the businesses that are producing or providing the services that people will still need regardless if they have dollars to pay for them. This means they would still have “currency” in an economy where a dollar is worth nothing.

    Meanwhile roads are very useful to the poor since that is how goods are transported even for people without cars. However, we had roads prior to a department of transportation and prior to Federal Aid Highway act of 1956. Likewise we had airlines prior to the FAA and education prior to the department of education. The rich are sending their kids to private school and paying their own way, while also paying into public education for the benefit of the poor. Additionally, education funding mostly comes from State sources (and down) where we’ve been mostly discussing federal sources.

    I am likewise skeptical of our involvement in wars on foreign soil and would like to see large govt spending cuts in the area of our foreign policy. As for national parks, I think you’ll find that spending being championed by the environmental lobby.

    Out of all the things you listed, only national defense seems to clearly be a rich benefit. The rich “consume” more defense because they have more assets to protect. Meanwhile Social Security, welfare, food stamps, hot lunches, medi-anything, unemployment, higher eduction grants, etc. all benefit the lower income disproportionately.

  25. Nick Benjamin Says:

    A simple comparison:

    Benefits a welfare mom gets from the government:
    Welfare benefits
    Food stamps/WIC
    Medicaid
    Public education to High School
    Municipal services
    Indirect use of roads (buys things trucked in)
    Some stuff I’m forgetting everybody gets

    Sergey Brin, google Billioniare:
    Public Education including college, currently on leave from a PhD program
    Municipal services
    Indirect use of roads
    Some stuff I’m forgetting everybody gets
    FAA for safe plane flights
    Highly regulated financial system allowing
    -Loans
    -Incorporation
    -Complex contracts
    The Internet
    20,000 employees, mostly publicly educated
    Direct use of the roads
    Some other stuff he’d use but a welfare mother wouldn’t

    With less extreme examples the difference is less stark, but anybody who owns stock in Google takes indirect of all the stuff Brin uses.

  26. WHQ Says:

    So I’ll just point out that the biggest annual costs in the federal budget are social security and medicare.

    Be careful not to confuse cost and benefit. A billion-dollar stretch of highway can produce far more than a billion dollars in income for those in a position to use it on a large enough scale. A dollar of SS is a dollar. “Benefit the most” does not equal “cost the most.”

  27. WHQ Says:

    I’m surprised to see that no one has discussed capital-gains rates. That’s a major factor in the amount of taxes paid by the wealthiest in this country. Capital gains are taxed at no more than 15%, regardless of total income. Janitors don’t make a very large percentage of their income from capital gains.

  28. WHQ Says:

    Long-term capital gains, that is.

  29. kranky kritter Says:

    Nick, your anecdotal method is proof of exactly nothing. If you want me to take your silly argument seriously, come up with a functuonal working defintions of things like rich and poor and “benefit,” and come up with a reliable objective way to measure your hypothesis.

    Until then, I’ll continue to class it as preposterous to say that such a thing is “obvious” in any meaningful sense.

    @WHQ For sure. What you say only begins to scratch the surface of how complex the calculus is on this matter. Which is why I was so irritated to see Nick blithely say that its obvious that rich people benefit the most from taxes. I don’tknow where we’d begin in trying to measure such a thing.Fundamentally, I don’t see what we gain from trying to determine which classes are benefitting from tax dollars. Not without a good honest objective way of actually doing it, Without that, all we get is an argument where each side is informed by its cherished prejudices.

    “How might we figure this out?” Is an interesting question. But presuming the answer is “obviously the rich? ” Trolldom.

  30. WHQ Says:

    I’m not sure Nick intended proof so much as an illustration of an idea through example. So I’ll see your anecdota and raise you a straw man.

    What is obvious is that people with more income and more wealth are benefiting financially (to a greater degree than those with less) from something. They may be smart, hard-working, visionary, highly motivated and whatever else. But almost no one in modern society creates wealth in a vacuum. And certainly no one creates lots and lots of it in a vacuum.

    There’s a monetary system, banking system, legal system, educational system and system of infrastructure; there are subsidies and R&D grants; there is military and police protection; all off the top of my head. It’s hard to see how these things don’t provide greater benefit to those who earn and have accumulated more than to those who earn and have accumulated less. It’s the whole context within which people wind up with more or less. It seems obvious to me as well, so I would like to know how wealthier people haven’t benefited more given that they are, well, wealthier. I can’t see that the burden of proof lies on my side any more than on the opposite.

    You can demand data all you like, but it rings hollow when you don’t have any yourself. And just because I can’t tell you how many stars there are in the sky or how many houses there are in New Jersey, it doesn’t make me a troll to say there are more stars in the sky than houses in New Jersey. If you honestly think something is obvious, I don’t think it makes you a troll to say it, despite not having a handy data-set available. (Not that the validity of such a data-set wouldn’t be endlessly argued over if it did exist.)

  31. Nick Benjamin Says:

    Nick, your anecdotal method is proof of exactly nothing. If you want me to take your silly argument seriously, come up with a functuonal working defintions of things like rich and poor and “benefit,” and come up with a reliable objective way to measure your hypothesis

    I’m attempting to illustrate the point, not prove it beyond a doubt. As you point out proving this kind of thing to the penny would be virtually impossible. But proving it to the extent that I can morally justify rich people paying a higher tax rate is another thing entirely. The nice thing about morality is it’s supposed to be debatable.

    That said I’d be interested in seeing somebody try to prove (for example) that a waitress benefits more from her government then the restaurant owner.

    And yippee! I remembered how to do quotes!

  32. Seth Says:

    Kranky Critter is dead on.

  33. WHQ Says:

    As far as the moral and fairness arguments go, the marginal utility of money strongly supports progressive taxation.

    I’d like to know, is anyone here arguing against progressive taxation? Or are we arguing about where the marginal rates should be? My personal opinion is that there should be additional brackets for high earners. By “high earners,” I mean households bringing in more than half a million dollars per year. I’d probably add another bracket at a million, another at five million, and anonther at ten million (maybe another at 50 million, and another at 100 million?). Keep in mind that we’re talking about marginal rates here. Once you’ve gotten to 10 or 50 million, I wouldn’t have a problem with marginal rates over 50%.

    I’m not against people getting rich or even really, really rich. That’s why I wouldn’t advocate a marginal rate of 100% (or more) at any income level. I think every dollar of additional pre-tax income should result in some amount of after-tax income.

    As far as disincentivizing productive activity (resulting in mass going-Galt by the millions of Randians), I think people who make lots and lots of money (like 10′s of millions or more) doing something truly productive aren’t in it for the money so much. They’re people who like to do things, who are curious and driven, and who want to see their vision realized. The ones who are in it just for the money are more likely to be Bernie Madoff types, in my opinion, so I don’t mind disincentivizing them.

    But I still think the more money one makes, the more likely one is to rely more heavily on the institutions of government. Don’t get me wrong, I think everyone does to some degree or another. But when you start getting up towards, say, the million-dollar mark, you’re really gaining the benefits of the numerous systems we have in place that keep things working in a reasonably ordered fashion.

  34. Bob Says:

    Chris is dead on.

  35. Chris Says:

    Why thank you Bob!

  36. Chris Says:

    my joke failed. Come on justin let the other one through :)

  37. kranky kritter Says:

    I’d like to know, is anyone here arguing against progressive taxation? Or are we arguing about where the marginal rates should be? My personal opinion is that there should be additional brackets for high earners. By “high earners,” I mean households bringing in more than half a million dollars per year. I’d probably add another bracket at a million, another at five million, and anonther at ten million (maybe another at 50 million, and another at 100 million?). Keep in mind that we’re talking about marginal rates here. Once you’ve gotten to 10 or 50 million, I wouldn’t have a problem with marginal rates over 50%.

    I’m not. Progressive taxation (higher rates for those with higher income) makes sense to me. How high is another matter. I think rates over 50% are punitive, especially if you consider that doesn’t include the state bite on top of the federal. Maybe at 50 million it wouldn’t bother me that much.

    But I do think incentive and motivation does matter quite a bit. You said:

    I think people who make lots and lots of money (like 10’s of millions or more) doing something truly productive aren’t in it for the money so much. They’re people who like to do things, who are curious and driven, and who want to see their vision realized.

    That’s pretty romantic of you. Not to mention blithe. Just because people are creative and driven doesn’t mean they don’t care whether they get to keep what they’ve earned. They’ll be just as creative and driven when it comes to tax avoidance. What so often happens is that the super wealthy find creative ways to avoid taxes, and then it’s the next level or two down that get hammered.

    You can demand data all you like, but it rings hollow when you don’t have any yourself. And just because I can’t tell you how many stars there are in the sky or how many houses there are in New Jersey, it doesn’t make me a troll to say there are more stars in the sky than houses in New Jersey. If you honestly think something is obvious, I don’t think it makes you a troll to say it, despite not having a handy data-set available. (Not that the validity of such a data-set wouldn’t be endlessly argued over if it did exist.)

    My point was that without real data, real methods of making a good faith determination, one ought to show some reticence before making grand claims. So my point doesn’t ring hollow at all. I didn’t say Nick was wrong, I said it was inflammatory to claim the point was obvious. Your analogy is quite crappy. Anyone who understands basic notions about orders of magnitude in real-world phenomena knows there are more stars. Stars and numbers of houses are basic quantifiable concrete things. Which is exactly what notions of how much a given individual benefits from government are not.

    What is obvious is that people with more income and more wealth are benefiting financially (to a greater degree than those with less) from something. They may be smart, hard-working, visionary, highly motivated and whatever else. But almost no one in modern society creates wealth in a vacuum. And certainly no one creates lots and lots of it in a vacuum.

    Right, and how much ongoing credit goes to the individual versus the government, to say nothing of private institutions.

    There’s a monetary system, banking system, legal system, educational system and system of infrastructure; there are subsidies and R&D grants; there is military and police protection; all off the top of my head. It’s hard to see how these things don’t provide greater benefit to those who earn and have accumulated more than to those who earn and have accumulated less. It’s the whole context within which people wind up with more or less. It seems obvious to me as well, so I would like to know how wealthier people haven’t benefited more given that they are, well, wealthier. I can’t see that the burden of proof lies on my side any more than on the opposite.

    And there’s all the private stuff overlaid on those things too. And how do we account for the large numbers of people who require all or most of their support from the government? Again, what’s the calculus? What the method by which we say that the government is doing too much for rich people and meanwhile not enough for poor people. Since poor people don’t benefit from let’s say a capital gains tax reduction, then what, it’s immoral?

    Look, I get what you mean about how there’s this huge tapestry of modern institutions upon which huge and hugely lucrative modern enterprises rely. But IMO it’s a big leap from there to the conclusion that it all relies on government (versus individuals and private entities) and that the large enterprises are primary benefactors.

    There used to be a lot less government, and there were plenty of rich folks. And being poor was practically a death sentence. Those were the days of the nasty, brutish, short lives. Now there’s a lot more government, and life is less brutish for the poor. In terms of life expectancy, for example.

    And in places where there isn’t much government, wealthy people can do even better than in a highly regulated environment. They use only as much of their resources as they need to privately provide the things they want, and not a penny more.

  38. WHQ Says:

    I’m not. Progressive taxation (higher rates for those with higher income) makes sense to me. How high is another matter. I think rates over 50% are punitive, especially if you consider that doesn’t include the state bite on top of the federal. Maybe at 50 million it wouldn’t bother me that much.

    Then it seems we largely agree on that point. Plus the feds don’t consider the money that was paid to the states as income. You’d only be taxed on what was left and at whatever marginal rates applied to that amount.

    Just because people are creative and driven doesn’t mean they don’t care whether they get to keep what they’ve earned.

    I didn’t say they don’t care. I said they weren’t in it for the money so much. In other words, they won’t stop making what they think are good investments or trying to come up with new software or making a better LED over not being able to keep some marginal percentage of their income above some some amount that is way beyond what they need to satisfy all but the most absurd material wants.

    Again, what’s the calculus? What the method by which we say that the government is doing too much for rich people and meanwhile not enough for poor people.

    There is no absolute calculus. There are arguments, like the one we’re having, and judgment. There’s democracy. But the lack of an absolute calculus doesn’t support any given tax regime over any other, so it’s kind of a moot point. I can’t say for sure what the best decisions will be for me tomorrow, but I still have to do something, so I’ll do my best.

    But IMO it’s a big leap from there to the conclusion that it all relies on government (versus individuals and private entities) and that the large enterprises are primary benefactors.

    It doesn’t all rely on government, and I never wrote that. It’s that comparatively, larger entities rely more on government institutions and infrastructure than smaller ones.

    There used to be a lot less government, and there were plenty of rich folks. And being poor was practically a death sentence.

    Well, sure, when rich people were allowed to exploit the poor to the point of killing them. There were kings and lords in the days of feudalism, but I doubt you’re arguing for a return to that, or the early days of the mining town with the company store and company housing and 80-hour work weeks, or chattel slavery for that matter. Regulatory environments are there so that rich people have to become rich while observing some reasonable degree of morality and humanity. I think we can accept that construct as a given with no need to harken back to the unfettered good old days of blatant exploitation. (Please don’t take that to mean that I’m suggesting you would advocate feudalism or slavery and such, KK. I know you better than that.)

  39. Michael LaRocca Says:

    I’ve got to go with the obvious here. Redistributing the wealth. And before all the knee-jerk cries of foul, we’ve obviously been redistributing the wealth for decades, but in the wrong direction.

    I have no vested interests here, by the way. I moved to Asia before the Bushies stormed the Oval Office.

    Scrap the complex tax code, go with some simple progressive percentages, tax all the churches and other non-profits, and then see how fast we can take something as simple as that and screw it all up with complexities and exemptions. But at least we’ll start with the same clean slate that we had a couple of centuries ago.

  40. Nick Benjamin Says:

    @kk:
    It would actually be easiest to calculate the value a really poor person received:
    Welfare + Food Stamps + WIC +Medicaid

    The problem comes when you’re calculating the benefits for richer people. Clearly the Google guys would not be super-rich if Uncle Sam hadn’t used money to build the Internet, but how much? The waitress benefits significantly because roads allow her to get work, but how much?

    Oh, and in countries with no government the rich are only rich in comparison to everyone else. Nigeria has half our population, but only two Billionaires. Brazil is closer to 2/3, but they only have 11. IMO it’s pretty clear the US has the optimal form of government in terms of allowing people to become ridiculously wealthy.

  41. Frank Hagan Says:

    Its instructive to look at total federal taxes, not just income taxes.

    The income tax started as a tax on the wealthy only. Recent reductions in tax rates have made it a tax for the upper middle class and wealthy once again. Bush’s tax cuts removed a lot of the poor from the tax rolls altogether, and reduced the rate from 10% to 5% for many others. It is true that the bottom 40% of wage earners get a refund exceeding their contribution in income taxes. To be fair, this refund (the “earned income tax credit”) is intended to reduce the impact of the payroll tax (ie Social Security and Medicare), which is a punishing regressive tax on the poor wage earner. It starts with the first dollar earned and is an effective rate of about 15% (when you count employer match).

    No wage earner pays less than that 15% effective rate on income up to $102,000. Until this year, the amount collected from that tax more than paid for the outlays of the Social Security administration (and in fact, was “siphoned off” into the general fund). The rich wage earner … and if you earn over $102,000 you are rich … gets a pass for every dollar past that amount. So you have to adjust those higher rates in income taxes by the payroll tax break they are getting.

    An income tax rate that jumps from 25% to 32% at $102,000 would mean the rich wage earner would have the same amount of take-home pay in his paycheck (and the employer would pocket his contribution of 7%). As it is, once he hits $102,000, he gets an 15% reduction in the effective tax he pays.

  42. Political Graffiti « ScribbleScrawl Says:

    [...] other astonishing news, check this statistic [...]

  43. Jay Says:

    Well I realize I’m posting a reply to this article a month late, but I just came across this wealth distribution pie chart elsewhere and feel the urge to vent about it somewhere. It is truly obscene, there is no way we can be called a “free country,” a democracy; how can we as a people collectively allow this degree of concentration of wealth, how can we let it get SO bad. We WILL have another Depression, perhaps even worse, as such a process cannot be sustained and must eventually collapse.

    In response to Nick Benjamin’s post:
    “Now we can all discuss what we think is fair, but lets have the moral discussion first. Why do we think that we can take more money from people just because they have it? Where is that line? I realize that there are plenty of idle wealthy in that top 5% and 1% groups that didn’t create their own wealth, but what is the justification for taking it? ”

    Well you answer your own question, first in your very statement of the question and then in the last sentence of the paragraph restating the question. Fair and moral are not separate issues; It is moral to do what’s fair, and immoral to create and exacerbate unfairness. And you admit that there are “plenty of idle wealthy”– who didn’t EARN the wealth they were able to TAKE, just from being born lucky–so it’s only fair, and therefore moral, for society to take back at least some of what was not rightfully earned from the super-rich, and give a more FAIR level of earnings to the non-rich workers.

  44. John Smith Says:

    @markgardiner I agree on what you said that as long as there is hope every person can get out of the rut they’re in. I am aware of the differences of people class but this has been a huge revelation. every class directly has an effect to the other. It is within our power either to pull each other down or rise together.

  45. Jenny Says:

    I’m not sure how true this is but…

    I have heard that there is in fact no law that states an American citizen must pay income tax.

    Apparently a few individuals working for the IRS put out a reward of $5000 for the person that could find the law and no one could so they resigned.

    Could be nonsense though. Anyone heard of this?

  46. Tully Says:

    Pure nonsense. See Chapter 26 US Code. Or believe the BS and they’ll take everything you have in tax court. And put a lien on your future as well.

  47. cranky critter Says:

    Or the 16th amendment, according to wikipedia:

    Ratification of the Sixteenth Amendment
    In response, Congress proposed the Sixteenth Amendment (ratified by the requisite number of states in 1913),[20] which states:
    The Congress shall have power to lay and collect taxes on incomes, from whatever source derived, without apportionment among the several States, and without regard to any census or enumeration.
    The Supreme Court in Brushaber v. Union Pacific Railroad, 240 U.S. 1 (1916), indicated that the amendment did not expand the Federal government’s existing power to tax income (meaning profit or gain from any source) but rather removed the possibility of classifying an income tax as a direct tax on the basis of the source of the income. The Amendment removed the need for the income tax to be apportioned among the states on the basis of population. Income taxes are required, however, to abide by the law of geographical uniformity.
    Some tax protesters and others opposed to income taxes cite what they contend is evidence that the Sixteenth Amendment was never properly ratified, based in large part on materials sold by William J. Benson. In December 2007, Benson’s “Defense Reliance Package” containing his non-ratification argument which he offered for sale on the Internet, was ruled by a Federal court to be a “fraud perpetrated by Benson” that had “caused needless confusion and a waste of the customers’ and the IRS’ time and resources.”[21] The court stated: “Benson has failed to point to evidence that would create a genuinely disputed fact regarding whether the Sixteenth Amendment was properly ratified or whether United States Citizens are legally obligated to pay Federal taxes.”[22]

  48. Catherine Mullikin Says:

    In my opinion the americans are getting drastically poorer. I was really angry when I watched one of Obama’s speeches in which he said that ‘our economic is under control’. Who is going to believe that…

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