(11-09-2012 04:10 PM)UCF08 Wrote: Quote:I don't know that is accurate. Owl has laid out why a while back but I can't remember which thread. It was a really good summary though.
I doubt it was more in depth than this study was.
Quote:The top income tax rates have changed considerably since the end of World War II. Throughout the late-1940s and 1950s, the top marginal tax rate was typically above 90%; today it is 35%. Additionally, the top capital gains tax rate was 25% in the 1950s and 1960s, 35% in the 1970s; today it is 15%. The average tax rate faced by the top 0.01% of taxpayers was above 40% until the mid-1980s; today it is below 25%. Tax rates affecting taxpayers at the top of the income distribution are currently at their lowest levels since the end of the second World War...As measured by IRS data, the share of income accruing to the top 0.1% of U.S. families increased from 4.2% in 1945 to 12.3% by 2007 before falling to 9.2% due to the 2007-2009 recession. At the same time, the average tax rate paid by the top 0.1% fell from over 50% in 1945 to about 25% in 2009.
Actually, my criticism was of Piketty and Saez's work, from which a lot of Hungerford's study is derived. Piketty is a leading economic thinker in the French socialist party and one of the archtects of the 75% tax rate on the "rich" that France is imposing, and judging from their publications, Saez and Hungerford are pretty much fellow travelers. This is not just "shoot the messenger" as I am also going to identify some substantive problems with the message, but it does give you some perspective on where they are coming from.
What has happened to the "rich" is that as their tax rates have dropped, the definition of taxable income has changed by law, so that the net effect has been virtually zero. Take a look at the numbers you cite. If the "rich" share of income was 4.2% in 1945 and they paid an effective rate of 50%, then their taxes amounted to 2.1% of income. If their share of income was 9.2% in 2009 and their effective rate was 25%, then their taxes amounted to 2.3% of income. So despite the rate change, their taxes have stayed about the same, increased slightly, and the increase would be far more dramatic if 2007 were used instead of 2009.
Obviously, that analysis is less meaningful if the increased percentage of income means that they are actually making more money. But it doesn't necessarily mean that. Let's take a look. Piketty and Saez used a measure of income roughly equal to what we call Adjusted Gross Income (AGI) and their source was IRS databases. Those are available online, anyone can download the data, I have and have run some analyses myself, I even replicated some of what Piketty and Saez did, so I'm well familiar with exactly what they did. Here's the problem. AGI today is not defined the same was as AGI was in 1945 or 1955 or 1965 or 1975 or 1985, and each of those years has slight variations from the others. The big change was the Bill Bradley-Ronald Reagan tax law of 1986. Rates for the "rich" were dropped from 50% to 28%--and the share of the total tax burden paid by those same "rich" increased by 8%. Obviously, taxable income got redefined by a factor of about 2 to 1, as you simply can't do the math in any way to support a different conclusion. Some of that was due to reduced itemized personal deductions, but most of those itemized deduction changes had actually been made with TEFRA in 1982. The vast majority of the difference in the 1986 act can only be attributed to changes in the definition of AGI. What's interesting is that if you look at page 12 of Hungerford's paper, there is a graph, citing Piketty and Saez as the source, which shows the share of the income for the "rich" roughly doubling from 1945 to 2010--with the change starting in, guess when, the late 1980s. I think we have found cause and effect here.
Given what we know about the 1986 law, and given that we know that other similar things have been done in the Clinton tax law of 1993 (and the second big wave in the Hungerford/Piketty/Saez graph takes off after 1994) and in other tax laws, it is entirely reasonable to conclude that the definition of AGI has changed enough--by law--that in 1945 and today, on the same facts, a "rich" taxpayer would report twice as much AGI today as in 1945. It's not that the income of the "rich" has grown, it's that the method for determining what part of income is included in AGI has changed, and that change is pretty much sufficent to explain all the variations in both Hungerford's work and the underlying work by Piketty and Saez.
I'm quite certain that Piketty, Saez, and Hungerford all know this full well. But they're interested in selling a narrative and anything that detracts from the narrative will not be considered by them. I understand it fully, and I know exactly where their errors are.
