January 10, 2018

WHICH RAISES AN OBVIOUS QUESTION...:

A new study says much of the rise in inequality is an illusion. Should you believe it? (Dylan Matthews, 1/10/18, vox.com)

Gerald Auten and David Splinter, economists at Congress's Joint Committee on Taxation and the Treasury Department's Office of Tax Analysis, used the same IRS tax data as Piketty, Saez, and Zucman. They found that the top 1 percent's share of after-tax income rose from 8.4 percent in 1979 to 10.1 percent in 2015 -- an increase less than a third as large.

What looks on paper like a big increase in inequality in the 1980s and onward, Auten and Splinter argue, is really just money being shuffled around in response to Ronald Reagan-era changes to tax law. In 1980, the top individual income tax rate was 69.13 percent; by 1989, it had fallen by more than half, to 28 percent.

In the 1960s and 1970s, companies usually reinvested their profits rather than giving raises to executives -- the high tax rates meant those salaries would be largely taxed away. Reinvesting the money ultimately benefited shareholders in the company by increasing the company's value, and benefiting shareholders means benefiting rich people. Owning corporate shares was much rarer for middle-class people in the '60s and '70s before the rise of 401(k)s and IRAs.

After the tax cuts, companies started directing more money to raises. Rather than exploding actual inequality, Auten and Splinter write, the Reagan tax changes mostly shifted money that used to go to rich people through stocks so that it instead went to rich people in the form of salary.

That looks like a big increase in the rich's slice of the pie on paper, because the higher salaries show up on tax returns, but the increasing value to shareholders doesn't, at least until the shares are sold.

Auten and Splinter argue that the salary boost is largely an illusion. These compensation changes and other measurement issues, they find, account for 85 percent of the apparent rise in the top 1 percent's share of after-tax income since 1960.


...as we universalize and broaden stock ownership, should we bring back confiscatory rates at some threshold?


Posted by at January 10, 2018 7:40 PM

  

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