Monday, February 05, 2024

The income gap

If a thesis is repeated hundreds of times, many people believe it; if it is repeated millions of times, hardly anyone doubts it. Like masks can stop the spread of a virus, or you can stop climate change by forcing people to own a different car or sending rich celebrities in private planes to conferences where they lavish themselves with goodies, or men can become women by wishful thinking and hormones. And there's another one: there's a rising gap between rich and poor.

"Phil Gramm, Robert Ekelund, and John Early recently showed in their excellent book "The Myth of American Inequality: How Government Biases Policy Debate." The actual percentage of their income paid by the top one percent of earners in tax in the U.S. was only 16.1 percent in 1962, when the top marginal rate was 91 percent. However, in 1988, when the top rate was only 28 percent, the percentage paid by the top one percent of earners had risen to 21.5 percent! As the top tax rate fell by two-thirds, the percentage of their income that the top one percent of tax filers paid in federal income and payroll taxes rose by a third.

Since the 1960s, the welfare state in the U.S. has been constantly expanded, so that the proportion of the population receiving transfer payments, and the amount of transfer payments, has increased continually. If one takes into account taxes on the one hand and transfer payments on the other, it becomes clear that the actual income, i.e. what a citizen has left after taxes and transfer payments, is much lower for the rich and much higher for those on low incomes."

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