Tuesday, January 19, 2016

Taxing Rich More Heavily Gets Votes, But Ineffective in Reducing Inequality

Even the down home atmosphere of Omaha's Sokol Auditorium could not hide the irony of mega rich Hillary Clinton and Warren Buffet speaking on behalf of the non-rich and calling for an increase in income tax rates on high income earners. One of the goals of their proposals is to cut income inequality.

However, 17 years of income data should smack some reality into their misguided proposal. In 1996, the top 10% of U.S. income earners paid roughly 60% of income taxes, while the bottom half paid 9%. In 2013, the top 10% of earners paid approximately 75% of income taxes, while the bottom half of income earners received more back from the IRS in cash than they paid in income taxes (a negative burden) via programs such as the Earned Income Tax Credit.

Thus, between 1996 and 2013, the share of federal income taxes paid by the "rich" increased while that of the bottom half of taxpayers declined. What happened to income inequality during this period of time?

*The top 10 percenters' share of income rose from 50% to 64% while the bottom half declined from 12% to 8%.
*The Gini coefficient, which measures income inequality, indicated income distribution tilted more in favor of the rich.
*In 2013, nine states with no income tax had lower Gini coefficients, (i.e. less income inequality) than the remaining states.

Thus, federal and state income tax data provide absolutely no evidence that taxing the rich more heavily reduces income inequality. Hammering the rich with higher income taxes is a "vote getter" but only making sense to politicians. Ernie Goss

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