Posts Tagged ‘tax cuts’

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Neil Irwin is right: “Poor and working-class Americans have fallen behind over the last generation, receiving few of the gains of an expanding economy.” So, he wants to devise a tax plan to change that.

The problem is, Irwin only looks at raising the income of the bottom 20 percent of families to where they would be if they shared equally in the gains since 1979.

So what would it all cost? The Tax Policy Center crunched the numbers: The policy would deplete federal coffers by $1.02 trillion over a decade.

That is serious money.

Sure, it’s serious money. But it’s only the tip of the iceberg. By my calculations (illustrated in the chart above), national income per adult and the average income of the bottom 90 percent (both in 2013 dollars) were almost equal in 1970. But national income per adult has risen a whopping 87 percent since 1970, while the average income of the bottom 90 percent has actually fallen, by 6.7 percent.

If we want to make up that gap, it’s going to cost much more than $1.02 trillion. In fact, it would take about $5.6 trillion—equal to the amount of the tax cuts President-elect Donald Trump wants to shower on wealthy individuals and large corporations—just to close the gap for one year.*

Now that’s serious money.

And it doesn’t begin to make up for all the pay working-class Americans have lost since 1970.

The only way to close the gap and to compensate working-class Americans for the pay they’ve lost over recent decades is to not to tinker with the tax system (or, for that matter, close the trade deficit, boost economic growth, or attempt to protect the safety net), but to change the existing set of economic institutions—by giving workers a real say in how the extra income they create gets distributed.

 

*My back-of-the-envelope calculation (90 percent of tax units times the gap between national income per adult and average income of the bottom 90 percent) is for 2013.

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December 5, 2016

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The total income reported on the top 400 individual tax returns rose 20 percent in 2014, according to Internal Revenue Service (pdf) data released last Thursday.

The figures reveal the concentration of earnings at the summit of the income distribution, in a club that required $126.8 million of adjusted gross income to enter. That tiny group, out of nearly 150 million tax returns in 2014, took home $175.5 million on average (that’s in 1990 dollars) and 1.3 percent of total U.S. adjusted gross income.

President-elect Donald Trump and the Republicans who control Congress have promised to lower the taxes on this group. First, they plan to repeal Obamacare and its taxes, which would bring the long-term capital gains rate down to 20 percent. A potentially even bigger benefit for the top 400 will come from  Trump’s proposal to slash the tax on corporate income from 35 percent to 15 percent. That rate would also apply to at least some of the “passthrough” income from S Corporations and partnerships that is reported directly on individual income tax returns and is now taxed at a top rate of 39.6 percent.

A lower rate for passthrough income would disproportionately benefit the über rich, just as the lower rate on capital gains does. In 2014, the top 400 earners reported 1.3 percent of all adjusted gross income in the U.S., but 2.94 percent of all partnership and S corp net income, and 10 percent of capital gains taxed at a lower rate.

We know the top 400 will benefit enormously from those tax changes. But we won’t be able to measure it, since the IRS also announced it would no longer release data on the top 400, which it has compiled going back to 1992. Instead, future reports will focus on the top 0.001 percent, which included 1,396 households for 2014.