And the Rich Get Richer

Econintersect:  You would expect the richest segment of society to make the most money.  Arguably the richest segment has greater mental and fiscal ability to generate more income.  However, warning bells should be going off when trend lines suggest that the top 1% are doing significantly better, while the rest were “less good”.

The Congressional Budget Office (CBO) report on Trends in the Distribution of Household Income Between 1979 and 2007 shows most American Income growth is less good in 2007 than it was in 1979.  The trend for the top 1% of income earners showed a growing rate of after tax income.     

CBO finds that, between 1979 and 2007, income grew by:

• 275 percent for the top 1 percent of households,
• 65 percent for the next 19 percent,
• Just under 40 percent for the next 60 percent, and
• 18 percent for the bottom 20 percent.

The CBO seems to blame this income boost to the top 1% on the current tax policies:

Likewise, the equalizing effect of federal taxes depends on both the amount of federal taxes relative to income (the average tax rate) and the distribution of taxes among households at different income levels. Over the 1979–2007 period, the overall average federal tax rate fell by a small amount, the composition of federal revenues shifted away from progressive income taxes to less progressive payroll taxes, and income taxes became slightly more concentrated at the higher end of the income scale. The effect of the first two factors outweighed the effect of the third, reducing the extent to which taxes lessened the dispersion of household income.

Opinion / Caveat by Econintersect: Is taxing the hell out of those doing good financially productive?  On the other hand, why do we tax the labor portion of worker income at all?   If it is the objective to grow the economy, then the government must put more money in the hands of the majority of its people.  Further this CBO study appears at a time where some political interests want to raise taxes – and therefore the objectivity of this study should be questioned.  Is the CBO taking sides in the debate?  Serious consideration should be given to a value added tax (VAT) system.

Source: CBO