TPS

I'm enjoying this.

This was an interesting post. You argue that taxes from the rich and middle class that go to the poor get funneled back to the rich by the spending of the poor. This is "water under the bridge" for the rich, but the middle class essentially get screwed. While all of that sounds correct, you conclusion doesn't follow. If the taxes of the rich come back to them in the form of spending by the poor, why would taxing the rich "only make it worse"? It seems your logical conclusion would be, keep taxing the rich to funnel money to the poor, lower taxes for the middle class, and all of that spending by both the middle and the poor will come back to the rich in the end. Yes?

Hmmm...consumer demand drives job creation. Who would've thought....

I read that on a blog yesterday. The EU (German) and IMF bankers better get some more protection if that is the case...

I meant inequality and social stability have been discussed for as long as society's have existed. Progressive taxes and restraining inequality come into play in the early 20th c. for US.

It's already happening in the form of depositors taking what they can out of ATMs. They declared a bank holiday for today, and possibly continue tomorrow until they do something to calm people down.

If you guys want to talk wealth confiscation...

As #3 suggests, the additional gains add to their "growing asset base" (wealth), which also adds to income inequality. Yes, they are connected, assuming you understand that wealth generates a return. That is the connection made with the rise in after-tax income over time--it leads to increasing "savings" or wealth, which leads to increased investment income. Rising income inequality leads to rising wealth inequality which leads to rising income inequality which leads to.....

Since you left out the pertinent info for that part of the response, I suppose you can make it look like that's what I said...if that's your intention.

You've just redefined the terms to meet your 99% certainty statement. I said tax policy influences measured income inequality, and you've changed it to wages paid--I'm sure that will fool a few people. The argument isn't complicated: 1. Lowering the top marginal rate leads to a lower effective average tax rate for the 1%. 2. In the example I gave for 2009, the top 1% gained an additional $140 billion in after-tax income from the decline in their average tax rate relative to their 1981 rate (versus about $40 billion for the bottom 50%, and the bottom 50% spend all of their income). 3. The after-tax income gains reinvested over time (going back to 1981) add to the growing asset base of the top 1-10% and therefore their income. We're not too far away. The top 20% owns 95% of the financial wealth in the US.

A goal. It's an issue that's been discussed for thousands of years--the impact inequality has on social stability. Maybe you missed it?

You create a straw man when you imply progressives want everyone to receive their fair share. The goal of a progressive tax system is to keep inequality from reaching its logical conclusion (from compound interest)--an elite 0.01% that controls all private wealth and uses that wealth to buy political influence to maintain their wealth and control. Extreme inequality and democracy do not tend to be compatible.

Since we have a lot of discussions about this, it might be of interest to many here. I thought it was a good piece. http://seekingalpha.com/article/1276891-how-gas-really-gets-priced?source=email_macro_view&ifp=0

Yes. I agree, but the last year just makes it more distorted. And, to the original point, the cuts in marginal rates since 1981 have worsened inequality over time. Last, the relative results are essentially a function of the math involved--it's a lot easier to generate a big % change from a small number than a big number. In order to keep your relative shares constant, assuming the bottom numbers go from 6 to 3, the top 1% would have to fall from 34 to 17%. The top 1%'s change, while smaller in % terms, allowed them to keep 350% more inomce after taxes than the bottom 50%.

As I stated initially, the "formal marginal tax rates" are "less progressive." The top rate has fallen from 70 to 35 (for the years of data), and the bottom has fallen from 14 to 10. In your relative terms, the ratio went from 500% to 350% relative to the bottom. However, the effective taxes paid, as you've indicated, are more progressive (though, again, 2009 is an outlier due to the recession, so it's not as extreme as that year indicates). We've gone from 34.5/6 to 24/3 (I think the numbers prior to 08-09 are more indicative). So your relative numbers look more progressive. The reality is those changes are what have also driven the rise in inequality, which was the original point I made. Lower marginal top rates (as well as other changes in tax advantages) have caused the effective average rates to decline from 34% to 24% over that period. Given the share of income the top receive, the additional after-tax income compounded over time increases their share relative to the bottom. That's just a matter of significantly greater after-tax benefits from their lower effective rates vs the after-tax benefits of the lower 50%. For example, in 2009, that 10% difference for the top 1% means they received an extra $140 billion after taxes; whereas for the bottom 50%, they received an extra $40 billion in after tax income from their lower effective rate. Do that for every year (at the appropriate rates) and it's pretty clear that tax policy influences inequality.

In this post I'm going to solely--"choke!"--admit that you are correct that the effective average tax rates indicate less progressivity. Just so this stands out for posterity. I'll provide my reponse in the next one.

You can scream all you want, but it's pretty clear from the data that the effective average tax rate paid by the top 1% is positively related to the top marginal rate. When the marginal rate declines, their average tax rate declines; when the marginal rate goes up; their average tax rate goes up. This shows up in the aggregate data too, as we've covered ad nauseum--total personal revenues as a share of gdp are lower the first couple years after supply-side tax cuts. Scream away...

Take a look at the history of the top marginal rate and the average tax paid by the top 1%.1981: top rate 70%; average tax rate=33.37% 1982: top rate 50%; average tax=31.43% (drop of 2.3%) 1987: top rate 38.5%; average tax rate=26.4% (drop from previous year of 6.7%) 1988: top rate 28%; average rate=24% (drop of 2.4%) 1991: top rate 31%; average rate=24.37% (up 1.1% from 1990) 1993: top rate 39.6%; average rate=28% (up 3% from 1992) 2003: top rate 35%; average rate 24% (drop of 3% from 2002) I think a simple correlation would find a significant relationship.

Again, same answer. They pay relatively more now because they have relatively so much more income. Christ! The shares at the bottom are so low, of course their taxes paid relative to the rich is lower (and vice versa). This is what rising inequality means. You are also missing the fact that total personal income taxes paid in relative terms is significantly lower as a result of the recession in the last couple years, which means the rich are OF COURSE paying a greater relative share. The working poor got laid off. That's not progressivity pal. It's like what willie sutton purportedly said, "I rob banks becuase that's where the money is." The rich pay relatively more, because that's where all the money is!!!!!

Not quite brainiac. Marginal rates in the US tax code have declined, so there is less progressivity in the TAX CODE. You are claiming that actual taxes paid are a measure of progressivity in the tax code; it's not. The rich pay more because of rising inequality; which means that the poor will pay less, because they have even less. Of course the rich pay a greater share over time, duh! Lower marginal tax rates since 1981 influence inequality because the rich now keep a greater share of their income, and the power of compound interest does the rest. Someone with your financial genius should be able to understand that earning 10% on a million dollars generates a hell of a lot more than 10% on a hundred dollars...

When will the Bills sign another free agent? Nix needs to fill another hole.

While globalization has probably been the most important cause of increased inequality, tax policy may be second on the list. The recent changes will probably help slow stem the tide a bit.

Obviously my fans did not understand the nature of my responses here. It started with a sarcastic response to GG's dig about "failed theories;" I brought up supply-side, and I continued with sarcasm... I think I have posted ad nauseum about causes of the housing crisis for them to know better. On the other hand, big deficits by supply-siders.... Sorry, didn't answer your questions: No; This is a political question, I'm for a government that represents the populous; yes; yes; you can't have production without finance; rent seekers need to be regulated.

"You complete me."

When China went capitalist...