Posts Tagged ‘taxes’

S*&P-revenues

OK, it’s not a very good chart (the yellow line should be labeled the share of income to the top 1 percent, and the blue line the annual percentage change in state tax revenues). But the argument is, in fact, serious: Standard & Poor’s [pdf] finds a strong correlation between growing income inequality and the fiscal crisis of the states.

The argument is pretty straightforward: rising income inequality since the late 1970s has been accompanied by two trends in the tax revenues received by the various states: a slowing in the rate of growth of tax revenues (from 1980 to 2011, average annual state tax revenue growth fell to 5 percent from 10 percent) and by a growing volatility in state tax revenues (from a standard deviation of 3.55 during 1950-1979 and 1.04 during 1990-1999 to 5.78 from 2000 to 2009).

And the explanation for this relationship?

the higher savings rates of those with high incomes causes aggregate consumer spending to suffer. And since one person’s spending is another person’s income, the result is slower overall personal income growth despite continued strong income gains at the top.

On top of that,

Those at the top obtain more of their income from capital gains, which on the whole, fluctuate much more than income from wages. Tax revenues reflect this — both as a consequence of higher top-end tax rates and because the top end is where the income growth has occurred –- and are, therefore, more volatile.

Thus, we should understand the following: when Standard & Poor’s downgrades the credit rating of one or another state, it’s actually downgrading the rise of income inequality within and across the states.

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