The recent passing of the GOP tax plan in the both House and the Senate means that Congress will continue its frantic pace on tax reform to overhaul the tax code by the end of the year. Many legislators are worried about the bill’s potential impact on working class families, and graduate students are anxious about the proposed tax on tuition waivers. No one knows what the Congressional tax plan will look like if it passes both houses and becomes law, but we do know that tax policy affects the structure of social inequality in America. Here’s how —
The tax code matters for what and who gets taxed. Researchers pay particular attention to the relative tax burden on various groups. The level of progressivity, or how much tax is paid by high income groups as compared to middle income groups, has shifted over time along with macroeconomic conditions such as unemployment, economic development, and budget deficits. Past tax reforms, particularly in 1986 and 2001, also shifted the proportion of taxes that come from wages and salaries as opposed to capital gains or other investments.
- Michael Patrick Allen and John Campbell. 1994. “State Revenue Extraction from Different Income Groups: Variations in Tax Progressivity in the United States, 1916 to 1986.” American Sociological Review 59(2): 169-186.
- Richard Caputo. 2007. “Federal Taxation of Individual Capital and Labor Income in the United States, 1978-2003.” Race, Gender & Class 14(1): 275-280.
Rising inequality as a result of the concentration of income among the highest earners is one of the most prominent points in social stratification research, and has fueled populist movements in the United States like Occupy Wall Street and the Sanders and Trump campaigns. Lower tax rates for the highest earners were a key driver of inequality between 1980 and 2008, along with shifts toward more conservative Congresses, lower union membership, and stock prices. Tax policy decisions that benefit the top half of the top one percent of Americans are clear examples of how organized political interests have more power to set policy than the interests of the average voter.
- Anthony Atkinson, Thomas Piketty, and Emmanuel Saez. 2011. “Top Incomes in the Long Run of History.” Journal of Economic Literature 49(1): 3-71.
- Thomas Volscho and Nathan Kelly. 2012. “The Rise of the Super-Rich: Power Resources, Taxes, Financial Markets, and the Dynamics of the Top 1 Percent, 1949 to 2008.” American Sociological Review 77(5): 679-699.
- Jacob Hacker and Paul Pierson. 2010. “Winner-Take-All Politics: Public Policy, Political Organization, and the Precipitous Rise of Top Incomes in the United States.” Politics & Society 38(2): 152-204.
Apart from debates on whether shifts in tax policy will actually stimulate economy growth, tax revenue affects availability of resources for social welfare programs that address persistent stratification across groups.
- David Williams and Chiquita Collins. 1995. “US Socioeconomic and Racial Differences in Health: Patterns and Explanations.” Annual Review of Sociology, 21: 349-386.
- Kate Strully , David Rehkopf, and Ziming Xuan. 2010. “Effects of Prenatal Poverty on Infant Health: State Earned Income Tax Credits and Birth Weight.” American Sociological Review 75(4): 534-562.