Thursday, April 16, 2015

Income Taxes, What's a Fair Share? Federal Government and Fed Actions Fail Low Income

In 2000, workers with incomes greater than $200,000 earned 33% of the nation's income, but paid 46% of income taxes. In 2012, well after the Bush tax cuts, the same high income group earned 41% of the nation's income, but paid a higher 55% of U.S. income taxes.

In 2000, workers with incomes less than $40,000 earned 14% of the country's income but paid 9% of U.S. income taxes. By 2012, this low income group earned 7% of U.S. income, but paid only 4% of U.S. income taxes.

That is, high income workers are paying an increasing share of the nation's income tax burden. Despite the rising share of federal income taxes paid by high income workers, income inequality continues to escalate. University of California at Berkeley economist Emmanuel Saez estimates that between 2009 and 2012, the top 1% captured 95% of total income growth.

What accounts for this? Certainly not income tax rates! It is arguably that the Federal Reserve (Fed) and federal government policies since the recession of 2008 have differentially aided high income, high wealth Americans.

The Feds bond buying programs (QE1, QE2 and QE3) pushed up asset prices including stock prices, bond prices, art, and other assets at an unprecedented rate. For example, between December 2008 and March 2015, prices of S&P 500 stocks collectively increased by 131%. Additionally, the 2008-09 bailouts of AIG, GM, Bear Stearns, Goldman-Sachs, Morgan Stanley, and the Obama Administration's $830 billion stimulus program mostly stimulated the incomes of the nation's wealthiest.

Federal government and Fed market intervention appear to have widened the gap between the high and low income groups. Tackling income inequality with income tax rates, as often advanced, has not and will not work.

Ernie Goss

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