{"id":51225,"date":"2012-09-22T11:00:14","date_gmt":"2012-09-22T16:00:14","guid":{"rendered":"http:\/\/blogs.lclark.edu\/hart-landsberg\/?p=1119"},"modified":"2012-09-21T21:31:01","modified_gmt":"2012-09-22T02:31:01","slug":"taxes-and-the-wealthy-the-effects-of-raising-top-tax-rates","status":"publish","type":"post","link":"https:\/\/thesocietypages.org\/socimages\/2012\/09\/22\/taxes-and-the-wealthy-the-effects-of-raising-top-tax-rates\/","title":{"rendered":"Taxes & the Wealthy: Effects of Raising Top Tax Rates"},"content":{"rendered":"

Cross-posted at Reports from the Economic Front<\/a>.<\/em><\/p>\n

There are those that argue that lowering the top marginal tax rates on\u00a0\u201cordinary\u201d income (from wages or salary) and capital gains will stimulate economic growth.\u00a0\u00a0Thomas L. Hungerford, in\u00a0a\u00a0Congressional Research Report<\/a>, tests and rejects this claim.<\/p>\n

He\u00a0finds no statistical relationship between changes in either of these top tax rates and private savings, investment,\u00a0productivity, or real per capita GDP growth.\u00a0\u00a0However, he does find a strong statistical relationship between changes in these tax rates and income inequality. \u00a0More specifically, raising top tax rates can be expected to\u00a0promote greater income equality without causing harm to the economy.<\/p>\n

Tax Trends<\/strong><\/p>\n

There are two main tax concepts: the marginal tax rate, which is the tax paid on the last dollar of income received, and the average tax rate, which is the proportion of all income that is paid in taxes.\u00a0 How much a person pays on the last dollar received depends on whether it is classified as ordinary income or capital gains.<\/p>\n

Most importantly, as the chart below shows, the very top tax payers have enjoyed a steady decline in their average tax rate.<\/p>\n

\"\"<\/a><\/p>\n

The next chart shows trends in top marginal tax rates on ordinary income and capital gains. \u00a0The top marginal tax rate on ordinary income has clearly been on the decline: from 91% in the 1950s, 70% in the 1960s and 1970s, to a low of 28% in 1986. \u00a0It now stands at 35%. \u00a0The top marginal capital gains tax rate has not changed as much.\u00a0 It was 25% in the 1950s and 1960s, 35% in the 1970s, and is now 15%.<\/p>\n

\"\"<\/a><\/p>\n

The Tests<\/strong><\/p>\n

Hungerford used econometric methods to test whether changes in top marginal tax rates affect\u00a0private savings, investment, productivity, and\/or per capita GDP growth.\u00a0\u00a0Simply plotting the movement of top tax rates and each of these variables suggests that a decline in top tax rates is\u00a0associated with a positive movement in each of these economic variables.<\/p>\n

However, as Hungerford correctly states,\u00a0correlation is not the same as causation.\u00a0 Using regression analysis, he\u00a0found that the\u00a0relationships were\u00a0only coincidental or spurious; there was\u00a0no statistically significant connection between changes in the top tax rates and movements in any of the\u00a0variables.<\/p>\n

Hungerford also tested to see if changes in top marginal tax rates had any effect on\u00a0the distribution of income.\u00a0 The first chart below shows the scatter plot of top tax rates and the share of income going to the top 0.1% for the years 1945-2010.\u00a0 The second shows the same with the top 0.01% of income earners.<\/p>\n

\"\"<\/a><\/p>\n

\"\"<\/a><\/p>\n

As we can see the fitted lines suggest a very strong relationship between the variables.\u00a0\u00a0As before, Hungerford used regression analysis to determine whether the relationships were statistically significant.\u00a0\u00a0This time his answer was yes in both cases;\u00a0changes in\u00a0top marginal tax rates do\u00a0affect\u00a0income concentration.\u00a0 In other words,\u00a0lowering the top rates increases income inequality, raising them\u00a0reduces it.<\/p>\n

It is time for us to start agitating for raising the top tax rates.<\/p>\n","protected":false},"excerpt":{"rendered":"

There are those that argue that lowering the top marginal tax rates on\u00a0\u201cordinary\u201d income (from wages or salary) and capital gains will stimulate economic growth.\u00a0\u00a0Thomas L. Hungerford, in\u00a0a\u00a0Congressional Research Report, tests and rejects this claim. He\u00a0finds no statistical relationship between changes in either of these top tax rates and private savings, investment,\u00a0productivity, or real per […]<\/p>\n","protected":false},"author":1853,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[1],"tags":[29,36,304],"class_list":["post-51225","post","type-post","status-publish","format-standard","hentry","category-uncategorized","tag-class","tag-economics","tag-the-state"],"jetpack_featured_media_url":"","_links":{"self":[{"href":"https:\/\/thesocietypages.org\/socimages\/wp-json\/wp\/v2\/posts\/51225","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/thesocietypages.org\/socimages\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/thesocietypages.org\/socimages\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/thesocietypages.org\/socimages\/wp-json\/wp\/v2\/users\/1853"}],"replies":[{"embeddable":true,"href":"https:\/\/thesocietypages.org\/socimages\/wp-json\/wp\/v2\/comments?post=51225"}],"version-history":[{"count":5,"href":"https:\/\/thesocietypages.org\/socimages\/wp-json\/wp\/v2\/posts\/51225\/revisions"}],"predecessor-version":[{"id":51230,"href":"https:\/\/thesocietypages.org\/socimages\/wp-json\/wp\/v2\/posts\/51225\/revisions\/51230"}],"wp:attachment":[{"href":"https:\/\/thesocietypages.org\/socimages\/wp-json\/wp\/v2\/media?parent=51225"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/thesocietypages.org\/socimages\/wp-json\/wp\/v2\/categories?post=51225"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/thesocietypages.org\/socimages\/wp-json\/wp\/v2\/tags?post=51225"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}