Using tax data to measure long-term trends in U.S. income inequality

by on September 13, 2017 at 2:13 am in Data Source, Economics, Uncategorized | Permalink

That topic has been knocking around for some time, with varying opinions.  I’ve now seen the clearest and most thorough treatment to date, namely from Gerald Auten and David Splinter.  It hasn’t received that much attention, perhaps because the results don’t have such a strong built-in constituency, but here goes:

Previous studies using U.S. tax return data conclude that the top one percent income share increased substantially since 1960. This study re-estimates the long-term trend in inequality after accounting for changes in the tax base, income sources missing from individual tax returns and changes in marriage rates. This more consistent estimate suggests that top one percent income shares increased by only about a quarter as much as unadjusted shares. Further, accounting for government transfers suggests that top one percent shares increased a tenth as much. These results show that unadjusted tax return based measures present a distorted view of inequality trends, as incomes reported on tax returns are sensitive to changes in tax laws and ignore income sources outside the individual tax system.

You’ll find the paper at the first link here.

1 PatrickFo September 13, 2017 at 2:29 am

Can someone explain what this means? What does it mean that it increased by “only about a quarter as much as unadjusted shares.” So the income of the 1 % increased by 25 percent of the increase in unadjusted shares? What are unadjusted shares? Any help would be appreciated.

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2 prior_test3 September 13, 2017 at 3:10 am

It’s pretty much on the order of how the American health care system looks pretty good in international comparisons, as long as one makes the necessary corrections. All that counts is a plausible reason for your adjustments to make things appear the way they should appear. (This is common in the American health care debates, to the extent that it is necessary to publish data refuting such plausible explanations as being incorrect – https://www.ncbi.nlm.nih.gov/books/NBK154469/ )

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3 dearieme September 13, 2017 at 6:55 am

“as long as one makes the necessary corrections”: most of the arguments I’ve seen on this topic don’t explain the American inferiority, rather they explain it away. Or so it seems to me.

Even the paper you link to makes some dubious points. For example:

(i) “it has higher rates of cancer screening and survival”: this is a notorious iffy argument because earlier or more screening may lead automatically to longer reported survival even if in truth it has no effect whatever on the progress and outcome of the disease.

(ii) “better control of blood pressure and cholesterol levels”: but there is considerable doubt about the importance of cholesterol levels and about the advantages of lowering BP, for all but the patients with unusually high BP. In other words “better” may be a value judgement that carries little truth.

(iii) “lower stroke mortality”: good, as long as it is not just a matter of diagnosis of cause of death, or of stroke, being subject to different fashions in different countries. That’s often a problem in epidemiology; whether this is such an example I don’t know. I plead ignorance.

(iv) “lower rates of current smoking”: I dare say that’s true though it would be good to know how it’s measured. Tobacco sales? Self reports? Blood tests? Breath tests?

(v) “and higher average household income”: I dare say that’s true too. I’m not sure why the average must matter: suppose for the sake of argument that it’s the lowest quintile that matters most. Can I be confident that international measures are sufficiently consistent be helpful here? Dunno. A definite maybe.

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4 dearieme September 13, 2017 at 6:58 am

About point (v): to be fair to the writers of the report they do check on the question of whether longevity figures differ even for the most prosperous groups and find the answer to be “yes”. So maybe my point (v) is too weak to bother with.

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5 dearieme September 13, 2017 at 7:00 am

And another thing: I’ve often wondered about the effect of so many Americans living in a vile climate – too damn cold in winter, horribly hot and humid in summer. Strangely I’ve never seen that used to explain away the problem. Maybe it doesn’t matter but it’s not obvious to me why everyone assumes that diet matters terribly but climate doesn’t.

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6 Floccina September 13, 2017 at 11:19 am

Interesting your link seems to provide a lot of evidence that it has little to do with health care. USAers are just wild.

DO USAers have more fun?

Simpson’s paradox still stands. Inuit in Denmark, first peoples in Canada, Aborigines in Australia all have shorter less healthy lives than others in their respective nations.
(begin sarcasm) I think we should fix our poor showing in life expectancy by allowing anyone from China or Vietnam who wants to immigrate to do so.

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7 Anon7 September 13, 2017 at 3:37 am

In 1979, the Piketty-Saez estimate is that the top 1% received a 9% income share, which increased by 10% to a 19% income share in 2013. In 1979. the Auten-Splinter estimate is that the top 1% received a 9.7% income share, which increased by only 5.1% (half of the PS estimate) to a 14.8% income share in 2013.

In 1960, the PS estimate is that the top 1% received a 9% income share, which also increased by 10% to a 19% income share in 2013. In 1960, the Auten-Splinter estimate is that the top 1% received a 12% income share, which only increased by 2.8% to a 14.8% income share in 2013.

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8 Bill September 13, 2017 at 7:56 am

So, one estimate starts out with a higher share of income held by the top 1% so the relative increase doesn’t look as big. Got it. One ends with the top 1% with 19% of total income; the other with 14.8% of total income with a 3.2% difference at the end taking into account different starting points and using the same end points.

Of course, the definition of total income in one includes employer share of health insurance, employer share of FICA, etc.

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9 Brian Donohue September 13, 2017 at 9:24 am

“Of course, the definition of total income in one includes employer share of health insurance, employer share of FICA, etc….”

As they should.

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10 byomtov September 13, 2017 at 4:24 pm

Also wondering about unrealized capital gains, which do not appear on income tax returns.

Nor i think, does income earned by retirement accounts of various types.

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11 kearney September 13, 2017 at 4:07 am

“… explain what this means?”

Realistically… it means absolutely nothing. It is useless analysis; nobody needs or will act upon it.

Why would we need to know “long-term trends in U.S. income inequality” (?)
This merely stems from standard leftist political ideology, obsessed with class distinctions/conflict and central planning — most modern economists embrace this view.

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12 wiki September 13, 2017 at 10:11 am

Actually its value is exactly because it diminishes the claims of the left wing. It is reasoned and careful and catches many of the technical omissions of Piketty-Saez which were just glossed over.

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13 kearney September 13, 2017 at 10:47 am

“…it diminishes the claims of the left.. ”

No, you’ve fallen for one of the left’s preferred tactics. If they can get you focusing on the “appropriate” questions — it doesn’t matter what the answer is…. you have shifted your mindset in their direction. In this case it’s economic equality. Is ‘economic equality’ a proper analysis pursuit for economists?

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14 comeon September 13, 2017 at 11:40 am

We are (free thinking anti-statists) allowed to combat two separate issues

1) Inequality is the wrong metric (Kearney is right, we can’t accept their inherently socialist premise to start the debate)

2) They are actually wrong about inequality anyway (Kearney is wrong, it’s crazy not to actually pause to tell them “you’re not just immoral monsters you also can’t add and/or lie about the fact”).

15 Goober September 13, 2017 at 4:04 am

Marriage rates should be going up as an entire group of people (homosexuals) can now get married.

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16 kronrod September 13, 2017 at 5:08 am

Another cause worth investigating is the aging of society. Inequality has always been higher among the old than among the young. Thus, one would naturally expect inequality to rise as the average age goes up. In fact, median age correlates extremely well with Picketty’s inequality measures for the US, with an R-squared of 0.8 or so (I calculated this some time ago). This suggests that the observed increase in inequality does not mean that the system got less fair, it is just a symptom of having more old people.

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17 dearieme September 13, 2017 at 7:02 am

Interesting point. Hats off.

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18 Bill September 13, 2017 at 7:58 am

You could do an age adjusted run. Of course, every old person dies (so I am told) and leaves an estate to a younger person, so I am not so sure that the effect is as strong as you think.

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19 JWatts September 13, 2017 at 9:24 am

“Of course, every old person dies (so I am told) and leaves an estate to a younger person, …”

I know your knowledge of the middle class is speculative, so this is an easy mistake to make. Half of the population doesn’t leave any substantial assets to its heirs. kronrod is exactly correct. The wealth disparities among retirees is much larger than the working age disparities. That’s the point in life when the savers have maximized their accumulation and those living hand to mouth no longer have a job.

Average Net Worth for those over 65 is $170K, which is overwhelmingly equity in their house.

https://www.fool.com/investing/general/2015/05/17/americans-average-net-worth-by-age-how-do-you-comp.aspx

That’s average not median. The median is, naturally, much lower.

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20 Bill September 13, 2017 at 10:00 am

JW,

The post is about income, not wealth, as it is using IRS income data. But, even if it were about wealth disparity, inheritances–guess what–are inherited, often by younger persons. I remember that Mitt’s kids have a $100 million trust fund.
But, the bottom line is that Konrods comment, as you so elegantly proved, is incorrect as he used the aged are wealthy and we are aging to support a claim about income. Thanks for pointing out his error.

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21 Ray Lopez September 13, 2017 at 10:36 am

kronron’s ‘old people are wealthy’ comment is quite right, for either net worth or income. Keep in mind ‘free cheese’ (government transfers) which drops Piketty’s “top 1% get 20% of income” to either 15% (previous papers) or 13% (this paper), see the crucial “Figure 3” in the paper.

22 JWatts September 13, 2017 at 11:29 am

“JW, The post is about income, not wealth,”

Inheritances are income. My point was that most people don’t ever see that income.

23 Bill September 13, 2017 at 1:15 pm

JW, Inheritances are not income, sorry,

24 Bill September 13, 2017 at 1:37 pm

Ray, I read kronod as saying that old people are NOT wealthy, which is why, in his mind, that the change in composition means that the average wealth went down relative to the 1% because they included more old people; you and JW are saying that the top !% went up because they were older. Strange. Old people are wealthy; old people are not. Seems like people have a hard time deciding, much less forming a consistent argument from it. My point is that you should age adjust the IRS income data. As for the wealth issue, remember that in both periods there were old people; the only difference between periods would be a change in the delta of old people relative to the past. If you are saying that old people in the past had higher net worth relative to younger people; that same statement would be true in the following periods. The only relevant issue is the change in distribution. konrod is saying that older people have LESS, not more, which is why he claims that the disparity increased as the number of older people increased. My observation would be that this must be a mighty big delta to explain the increase in the top 1% and also the old people pass on the assets to those below them, which further increases the wealth disparity.

25 JWatts September 13, 2017 at 1:42 pm

“JW, Inheritances are not income, sorry,”

Why are you sorry? It seems like you are pedantic and I don’t even understand whatever point you are trying to make.

You started this conversation with: ” every old person dies (so I am told) and leaves an estate to a younger person,”

That’s a patently and easily disprovable statement. I did so. Then you try to move the goal post away from your very own statement.

“The post is about income, not wealth,”

Now your making this pedantic statement “Inheritances are not income”, even though the actual original topic explicitly covers money transfers to people not covered by the standard IRS income data.

26 Govco September 13, 2017 at 1:44 pm

Bill, inheritances are income but specially excluded from tabulation of “gross” by Sec 102. Health Benefits, too.

27 Ray Lopez September 13, 2017 at 1:58 pm

@Bill – ok thanks, I did misread krodrod. I personally think old people are wealthier than before, skewing the data, but it’s just a hunch.

28 Bill September 13, 2017 at 2:33 pm

Govco, Since we are dealing with the IRS income data then inheritance is excluded, as I said, JW notwithstanding. If estate wealth is treated as income, then that only increases disparity.

JW, I didn’t see your proof, only your assertion that old people don’t die, or that they don’t pass their estates on to younger persons. But, be that as it may, you again prove what you are seeking to disprove: If you claim that wealth transferred via death in an estate IS income, then you are proving that “income” from wealth transfer via death IS contributing to wealth disparity or income disparity==take either one, since you are claiming that estate transfers are income. Congratulations, and I thank you for all your assistance.

29 JWatts September 13, 2017 at 3:14 pm

Bill you really can’t admit when you are wrong can you?

““Of course, every old person dies (so I am told) and leaves an estate to a younger person, …””

Every old person does not leave an estate to a younger person. You made an obviously incorrect statement and have been avoiding admitting it for 4 posts.

Here’s an older article (2003), but the only one I could find that actually included data on the whole population versus the population that are actually getting inheritances.

91.9% of the US population will receive no inheritance

http://money.cnn.com/2003/11/25/retirement/inheritance/

30 Bill September 13, 2017 at 5:18 pm

JW,

You really do not understand what you are saying, but it is humorous to listen to. You again prove my point and make it more convincing.

When you say that 91% of the people will not receive an inheritance, apparently you do not realize that those who do receive an inheritance get a transfer which raises their wealth, or, if you say inheritance is income, then their income as well.

You’re doing really good bring up information that only reinforces my point.

Thank you very much.

31 JWatts September 13, 2017 at 6:01 pm

I don’t think it’s occurred to you yet, that I wasn’t trying to disprove that point. I happen to agree that inheritance contributes to differences in generational wealth.

I would say most people believe that the children of rich parents are statistically more likely to be rich themselves.

32 Brian Donohue September 13, 2017 at 9:27 am

“Of course, every old person dies (so I am told) and leaves an estate to a younger person…”

LOL. I’ve often wondered why people who are poor and hungry don’t simply cash in some bonds.

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33 JWatts September 13, 2017 at 3:17 pm

If the peasants have no bread, then they can just eat cake of course, duh!

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34 Al September 13, 2017 at 10:06 am

That’s a great point.

+1

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35 Bill September 13, 2017 at 5:24 pm

Al, His point about the correlation does not take into account multicollinearity between the explanatory variables. If he were serious he would control for age.

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36 dearieme September 13, 2017 at 6:33 am

I have no opinion on their work, except this. ” accounting for government transfers suggests that ….”: anyone who doesn’t account for government transfers is being a crook, isn’t he?

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37 Common Sense September 13, 2017 at 7:16 am

The top 1% is not a strong, in-built constituency?

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38 Al September 13, 2017 at 10:10 am

Do you consume any media what-so-ever? There are vanishingly few outlets for stories which do not conform to the left’s world view.

Let’s see if this gets picked up anywhere. Heck, Tyler works at Bloomberg, let’s see if he writes about it there.

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39 Ayesha September 13, 2017 at 7:23 am

What’s more, something else: I’ve frequently pondered about the impact of such a large number of Americans living in an awful atmosphere – too damn chilly in winter, unpleasantly sweltering and muggy in summer. Peculiarly I’ve never observed that used to clarify away the issue. Possibly it doesn’t make a difference yet it’s not clear to me why everybody accept that eating routine issues horrendously however atmosphere doesn’t.

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40 Bill September 13, 2017 at 8:05 am

The inclusion of medicare and SS as income in one period, calling it a transfer, does not account for the fact that in an earlier period it was a deduction from income which was not shown in the chart as a deduction from income. Is it fair to include SS and medicare as “income” in one period, without showing it as a deduction from income in an earlier period. I think you would need to show net, if you included this at all.

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41 CanCan September 13, 2017 at 3:31 pm

They are highly progressive programs

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42 Bill September 13, 2017 at 5:25 pm

Great, you are making an argument for expanding these programs because, despite their existence, inequality is growing.

Great argument.

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43 Anonymous September 13, 2017 at 8:13 am

This sounds possible, but income is a bad measure for inequality.

It should be wealth.

But since good, especially current or continuous, wealth data is unavailable, so everyone farts around with “income.”

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44 Anonymous September 13, 2017 at 8:35 am

Ah, a nice new article explaining why:

“Let’s say you and I are neighbors. You’re an emergency room doctor, and I don’t work, thanks to a pile of money my grandparents left me.”

https://www.bloomberg.com/news/features/2017-09-12/why-american-workers-pay-twice-as-much-in-taxes-as-wealthy-investors

I wonder how many MR readers are shishito guy?

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45 Floccina September 14, 2017 at 9:56 am

The best thing to tax IMO is consumption (progressively and yes it can be as progressive as any other tax). Secondarily tax inheritance though taxing inheritance is double taxation becuase it will be taxed again when it is spent.

BTW In the article the the dividends and capital gains are taxed at the corporate level and the writer leaves that out.

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46 Floccina September 14, 2017 at 9:58 am

Also if FICA is a tax then SS is a welfare program and should pay out the same amount to each citizen over 65.

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47 Brian Donohue September 13, 2017 at 9:28 am

Should it? Why not consumption?

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48 Anonymous September 13, 2017 at 9:39 am

Consider two people. One is making $80k, buying a $500k house, driving a $30k car. The other has $5M in stocks and bonds, lives next door in another $500k house, drives a similar $30k car. Are they the same for the purposes of “inequality?”

Working guy might feel that his neighbor just puttering around the house has the better deal.

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49 Brian Donohue September 13, 2017 at 9:52 am

There is no consumption inequality in your example.

What’s your point? Are you against consumption inequality? Income inequality? Wealth inequality?

You seem to be against the last most of all. So, the 50 year old accountant who has piled up a couple million dollars on his $100,000 per year salary should fork some of that over to the 50 year old $300,000 law partner who never saved a nickel?

Talking about equality/inequality is basically math. Talking about fairness is a whole other thing. The difference should not be elided. Do better.

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50 Anonymous September 13, 2017 at 9:57 am

I made no normative statement.

Observationslly, I say wealth matters more in the question of who is rich, who is poor, and who is just getting along.

If you want to know, before you consider any policy, how well Americans are doing, look at wealth.

51 Anonymous September 13, 2017 at 10:04 am

In just a nuts and bolts sense, it is easy for a rich person to have low or no income for a given year. Especially if you can play Romney level games and get $100 million somehow stuffed into an IRA.

52 Brian Donohue September 13, 2017 at 10:05 am

I’m not sure I understand what you’re on about at this point, but I think I disagree.

I think it is more psychologically satisfying to be progressing toward an objective than to attain the objective. YMMV.

53 Anonymous September 13, 2017 at 10:18 am

Seems simple to me. Most partisans who want to say we have too much inequality (or everything is fine) use a crappy measure: income.

Or certainly it is crappy as the only measure. If you want to put three kinds on one chart go ahead: income, consumption and wealth inequality.

But only one makes for “idle rich.”

54 Hopaulius September 13, 2017 at 11:56 am

In some cases I think society would be better served by regarding wealth rather than income viz. eligibility for government benefits. A friend of mine inherited a princely sum from his urologist father, which enabled the son to retire early from his engineering job. He owns his house outright, drives a BMW, travels widely, and has no material needs. Yet he qualified for subsidies under the ACA on the basis of low income. On the other hand, I’m not eager to have the govt. assessing wealth, as it will just encourage them to confiscate it.

55 Anonymous September 13, 2017 at 1:09 pm

I think “stop fraud” should rate higher.

56 Thomas September 13, 2017 at 6:30 pm

Leisure is consumption. This reminds me that the left does not want to consider all forms of inequality, since that would imply that “free lance” Ivied Brooklynites in the top decile of attractiveness and convenient access to culture are perhaps wealthier than a contractor in Wisconsin earning $200,000 per year despite the former qualifying for EBT or rent assistance.

57 Floccina September 14, 2017 at 10:02 am

@Anonymous that MD’s license to practice is a big fat store of wealth. His brain is a is a big fat store of human capital. Both are wealth.

58 Floccina September 14, 2017 at 10:05 am

@Anonymous what you seem to want is a tax on leisure time. Am I getting you?

59 Floccina September 14, 2017 at 10:06 am
60 JWatts September 13, 2017 at 11:14 am

“Consider two people. One is making $80k, buying a $500k house, driving a $30k car. ”

This guy is in way over his head….

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61 Anonymous September 13, 2017 at 11:12 am

I will make a normative statement and tax plan:

We want workers to save and be responsible for their own risks and retirement. We also want a safety net for those who through bad luck or inability simply can’t hack a free market economy.

So:

Grant assistance immediately and without (tax filling) delay to those without wealth or income (truly poor). Tax everyone else once for new income (salary, gifts, inheritance). Tax that progressively. Scrap all tax favored education, health, and retirement accounts. In their place set a very high exemption on investment income (interest, dividends, capital gains). Set it as high as median salary for a 40 year old. $50k? Tax investment income above that high exemption. Tax that progressively as well.

Done?

Everyone gets to work and save. The real poor are helped. The real rich can’t dodge. No Ameri-trash trust fund kids.

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62 JWatts September 13, 2017 at 11:23 am

“Tax investment income above that high exemption. ”

People with large amounts of investment income can choose where to invest and where to collect. The top 1% will just move their investments out of the country. And only bring enough money into the country to cover their expenses here.

Your approach has been tried before. It just leads to capital flight.

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63 Anonymous September 13, 2017 at 12:53 pm

Any regime has to be policed, and foreign investment/income are now for the same reason.

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64 Ricardo September 13, 2017 at 1:30 pm

Americans who move money overseas in their own names to avoid taxes are risking serious prison time. Taxes on investment income apply to all investments held by U.S. citizens or U.S. entities and FATCA is making it more and more difficult to keep information about holdings in other countries from the IRS. That said, I suppose the super-rich can contact the helpful folks at Mossack Fonseca and transfer most of their financial wealth to some shady shell corporation incorporated overseas. But that’s a good argument for keeping the estate tax; eventually, the American owners of these shell corporations who have been letting dividend and capital gains income accumulate tax-deferred overseas are going to die and presumably pass their interest in the corporation on to somebody else. When that happens, the value of the assets held by the corporation can be taxed at estate-tax rates.

Anyway, I read Anonymous as advocating a tax cut: investment income is already taxed at progressive rates but with a relatively low exemption.

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65 JWatts September 13, 2017 at 1:51 pm

“Anyway, I read Anonymous as advocating a tax cut: investment income is already taxed at progressive rates but with a relatively low exemption.”

I read him as that he would like to tax investment income at a higher than current rate similar to earned income, but with a much higher threshold. (IE a 0% tax rate from $0 to $50K and then progressively higher taxes thereafter.)

“$50k? Tax investment income above that high exemption. Tax that progressively as well. … No Ameri-trash trust fund kids.”

66 Anonymous September 13, 2017 at 1:58 pm

Obviously you’ve got to pay the bills. No idea what the ideal Tax equation would be for the income types. $50k, with a question mark, is spitballing.

(I definitely don’t like Don’s “tax cut” tweet today. Not enough respect for tax modeling and bill paying.)

https://twitter.com/realDonaldTrump/status/907946177022369792

67 Potato September 13, 2017 at 6:01 pm

Way too complex and unnecessary.

Consumption tax.

First 20,000 is exempt.

20-80 is 20%.

80-150 is 30%.

150-500 is 35%.

500+ is 40%.

Eliminate all other taxes. Incentivize saving. For the idiots who think a foreign trade deficit is a problem, it’ll be solved over time with a consumption tax.

Who cares if someone is a billionaire if they spend 50k a year?

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68 Anonymous September 13, 2017 at 6:08 pm

The poor guy who makes and spends $50k has few options. The guy who makes 5% return on a billion certainly does, and sure as shit has higher means to pay for social welfare.

Consumption taxes are indeed pitched by billionaires, but to rubes.

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69 Potato September 13, 2017 at 6:28 pm

This is incredibly stupid. You’re not a math guy, we get it. If person A and person B in your account both spend 50,000 why treat them differently?

The rich are 100% not on board with consumption taxes, I don’t know where you got your Salon.com Econ degree.

If I make 50 million and spend 50 thousand then what’s the difference?

In reality it achieves balance. Saving is incentivized. However, the rich dude that makes money on dividend income is treated the same as the working lawyer who makes the same as long as they buy the same stuff. Unlike now where passive income is advantaged.

Sure, the billionaire that spends no money is advantaged. But then, you’re insane. If a billionaire spends the same money as a high school teacher without tenure why do you care at all? Tax it when it’s spent.

70 Anonymous September 13, 2017 at 6:45 pm

“Means to pay” is a very simple concept.

One could rephrase it as “pain of paying” to illustrate why progressive taxes are based that way, on means.

It is so simple that you must handwave in every direction to avoid it. You are asking to tax the school teacher with a wife and 3 kids at the same rate, no the same actual dollars, as the single trust fund kid who lives a simple life fly fishing in a cabin.

Rube or troll?

71 Al September 13, 2017 at 8:58 pm

Agreed Potato, a consumption tax is optimal.

However, the lefties don’t like it.

72 Floccina September 14, 2017 at 9:48 am

The problem with wealth is a frugal family that makes $50k a year can accumulate more wealth and spend thrift family making $150/year. This happens surprisingly often.

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73 Bill September 13, 2017 at 8:16 am

Guess Tyler missed the report that came out yesterday on income

“Inequality remains high, with the top fifth of earners taking home more than half of all overall income, a record. And yawning racial disparities remain, with the median African American household earning only $39,490, compared with more than $65,000 for whites and over $81,000 for Asians.”

https://www.washingtonpost.com/business/economy/us-middle-class-incomes-reached-highest-ever-level-in-2016-census-bureau-says/2017/09/12/7226905e-97de-11e7-b569-3360011663b4_story.html?hpid=hp_hp-top-table-main_census844pm%3Ahomepage%2Fstory&utm_term=.5f4da53be612

Of course, this is only wage earner income and not all income.

By the way, what has happened to those white guys. The Asians are beating their as*.

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74 Brian Donohue September 13, 2017 at 9:34 am

All categories of Americans remain among the highest income people in the world, although yawning disparities between Americans and the billions of poorest people in the world remain.

Meanwhile, Bill tries for a little internet arson.

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75 Bill September 13, 2017 at 10:02 am

Keep supplying the ignitable tinder and you will find that I will gladly light the match to enlighten all.

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76 Potato September 13, 2017 at 6:05 pm

What’s the consumption inequality ? That’s what matters.

Taxable income means reportable income. Does that mean illegal immigrants make zero dollars a year? And my acquaintances with cash only businesses operate at a massive loss?

Weird. Progressive consumption tax. Don’t pay a cent until you spend it:

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77 Anonymous September 13, 2017 at 6:59 pm

From Forbes, not exactly a Progressive outlet:

“The Achilles Heel, however, has been that consumption taxes tend to be regressive—hitting lower-income people proportionately harder than higher-income folks. The reason is simple: low-income people spend all their income (or more) while those with higher incomes save a substantial portion.”

78 Harun September 13, 2017 at 9:29 pm

Are progressives aware that europes welfare states have massive 20% VAT consumption taxes?

79 Anon7 September 13, 2017 at 10:53 pm

Check your Asian privilege! (That’s not going to go over well with the intersectionality twits).

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80 Todd K September 13, 2017 at 9:18 am

“By the way, what has happened to those white guys. The Asians are beating their as*.”

Where have you been the past 30 years? Asians have been the top income earners for decades and at least in the past was led by Japanese Americans — I think largely due to the Pachinko chains they run in the U.S….
Here is a graph. (Keep in mind this is in 2012 dollars)

http://www.businessinsider.com/heres-median-income-in-the-us-by-race-2013-9

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81 TMC September 13, 2017 at 10:42 am

Asians tend to work their as*es off. Good lesson to spread around.

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82 TMC September 13, 2017 at 10:45 am

Or Asian privilege. Yeah, that’s probably it.

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83 Ray Lopez September 13, 2017 at 10:11 am

Shorter paper summary: instead of the top 1% earning 20% of all income, as Piketty’s data says, the authors data shows them earning 13%, same as the unequal 1960.

My beef: since Warren Buffett pays no taxes, does he get dropped from the data? If so, he would skewer the average.

A better metric for inequality is wealth (net worth) not income. And anyway I don’t care, as kronron says upstream, inequality is a function of more old people living longer.

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84 Brian Donohue September 13, 2017 at 10:24 am

Buffett paid $1.8 million in federal tax last year. Chump change to be sure, but enough to put a dent in the Lopez Family Off-shore Tax Dodging Empire at whose teat you suckle.

He also made $2.86 billion in charitable contributions, FWIW.

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85 Ray Lopez September 13, 2017 at 10:39 am

BD, you identify with Buffett? Too bad he doesn’t identify with you. Do you own some fractional Berkshire shares? I almost got my 1% family (in net worth; by income, they are more like top 10%) to invest in Berkshire about 10 years ago, but they kept saying ‘Buffett will die and the company will go to pot’ while I kept saying ‘the company will do well regardless’ (I was right).

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86 TMC September 13, 2017 at 10:44 am

His secretary must be doing pretty well for herself if she paying >$1.8 mil in taxes, as we’ve heard.

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87 Ricardo September 13, 2017 at 1:43 pm

Learn how to check primary sources: “Last year my federal tax bill — the income tax I paid, as well as payroll taxes paid by me and on my behalf — was $6,938,744. That sounds like a lot of money. But what I paid was only 17.4 percent of my taxable income — and that’s actually a lower percentage than was paid by any of the other 20 people in our office. Their tax burdens ranged from 33 percent to 41 percent and averaged 36 percent.” He is pretty clearly comparing his average federal rate+FICA to those of other Berkshire employees. He never compared the dollar amount he owed.

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88 Al September 14, 2017 at 3:19 am

The only metric that matters is consumption inequality, Ray.

Consumption is taking out of the system, income is contributing to the system.

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89 FE September 13, 2017 at 1:35 pm

I’m going with Kling’s law #2, the data are insufficient. I don’t have much faith that the tax returns of the 1% accurately reflect their income.

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90 George September 13, 2017 at 3:39 pm

1% is mostly doctors and lawyers

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91 Harun September 13, 2017 at 9:31 pm

You can be a household of two state workers in California and be in the 1%

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92 Scott Gustafson September 13, 2017 at 2:37 pm

A couple of basic questions. Which type of inequality are we concerned about (income, wealth, or consumption) and why?

My Mother is a retired school teacher. She is in the first quintile for income and the fifth for wealth. Is she rich or is she poor? Does it matter?

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93 Bill September 13, 2017 at 5:27 pm

Does it matter. Yes it does.

If your grandmother got a tax cut that would create more jobs.

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94 Bill September 13, 2017 at 7:16 pm

Scott, I was only kidding, unless she hired someone with the small tax cut she got. Since she was a teacher, it may come later out of her state retirement program which gets cut because of the tax cut.

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95 Potato September 13, 2017 at 6:14 pm

Consumption , obviously. Who cares if a Hermit makes a billion a year? What people get angry with is (and yes it’s dumb) rich people buying 10 million dollar houses while poor people can’t afford unnecessary and most likely harmful prescription drugs.

So tax consumption and exempt the first 20 grand. Let a pauper in lifestyle get taxed like a pauper. And a dude that spends his entire 200k income get taxed on 200k. Meanwhile, shockingly, investment will go up. Morons that complain about the trade deficit can stop trying to enact incredibly stupid anti trade bills, Trumps won’t have as many talking points, and an average person that looks at a rich person can know they paid 35% tax on that mansion or new Mercedes. Every ostentatious display of wealth that so infuriates the educated but terrible at life people will be taxed. And then they can stfu. And that’s a win we can all get behind.

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96 Evans_KY September 13, 2017 at 7:57 pm

Counting government transfers and health insurance as income on par with the compensation of the 1% boggles the mind. This completely ignores the difference between subsistence and wealth. “While market income provides a measure of how individuals are compensated for their labor and investments, it provides an incomplete picture of the fraction of overall resources available to the top of the distribution.” Quite the understatement.

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98 Alan Reynolds September 20, 2017 at 3:05 pm

I was plowing through similar fields from 2006 to 2012, such as showing that business income was massively shifted from corporate to Top 1% personal tax returns.

In addition to my book “Income and Wealth,” here are two points from a working paper: https://www.cato.org/publications/working-paper/misuse-top-1-percent-income-shares-measure-inequality

• Excluding rapidly increased transfer payments and employer-financed benefits from total income results in exaggerating the rise in the top 1 percent’s share between 1979 and 2010 by 23 percent because a growing share of other income is missing.

• Top 1 percent incomes are shown to be extremely sensitive (“elastic”) to changes in the highest tax rates on ordinary income, capital gains, and dividends.

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