Wednesday, July 23, 2014

Piketty's Taxing the Rich More Heavily Doesn't Help Poor: Education Does

Thomas Piketty's New York Times best-selling book, Capital in the Twenty-First Century has created quite a stir among armchair economists, sociologists and politicians. Among Piketty's most embraced, rebuked and naïve recommendations for reducing income inequality is to raise income taxes on high income earners.

U.S. tax collection data since 1996 crush the soundness of this proposal. In 1996, taxpayers earning more than $200,000 paid an average tax rate three times that of workers making less than $50,000, and two times that of taxpayers earning between $50,000 and $200,000. By 2011, those making more than $200,000 paid almost seven times the average tax rate of taxpayers earning less than $50,000, and 2.5 times that of workers earning between $50,000 and $200,000.

Furthermore between 1996 and 2011, the bottom half of income earners' portion of total federal income tax collections dropped from approximately 10% to 2.5%. During this time period, the degree of income inequality rose as measured by the Gini Coefficient. The expansion in the U.S. Gini Coefficient from 39.3 in 1996 to 47.7 in 2011 indicates greater inequality.

If taxing the rich more heavily does not reduce income inequality, what does? Education!

In 2011, the ten states with the greatest degree of income equality had a high school graduation rate of 90.7% and the ten states with the greatest degree of inequality, had a much lower high school graduation rate of 59.1%. Furthermore, the latest U.S. employment data shows high school dropouts have an unemployment rate almost three times that of college graduates, and average annual earnings roughly 42.6% that of college graduates. Reduce income inequality, don't drop out!

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