(Image: Aran Chandran)
How the rich soaked the rest of us: The astonishing story of the last few decades is a massive redistribution of wealth, as the rich have shifted the tax burden.
Over the last half-century, the richest Americans have shifted the burden of the federal individual income tax off themselves and onto everybody else. The three convenient and accurate Wikipedia graphs below show the details. The first graph compares the official tax rates paid by the top and bottom income earners. Note especially that from the end of the Second World War into the early 1960s, the highest income earners paid a tax rate over 90 percent for many years. Today, the top earners pay a rate of only 35 percent. Note, also, how the gap between the rates paid by the richest and the poorest has narrowed. If we take into account the many loopholes the rich can and do use far more than the poor, the gap narrows even more.
One conclusion is clear and obvious: the richest Americans have dramatically lowered their income tax burden since 1945, both absolutely and relative to the tax burdens of the middle income groups and the poor.
Historical tax rates for the highest and lowest income earners.
Consider two further points based on this graph: first, if the highest income earners today were required to pay the same rate that they paid for many years after 1945, the federal government would need far lower deficits to support the private economy through its current crisis; and second, those tax-the-rich years after 1945 experienced far lower unemployment and far faster economic growth than we have had for years.
The lower taxes the rich got for themselves are one reason why they have become so much richer over the last half-century. Just as their tax rates started to come down from their 1960s heights, so their shares of the total national income began their rise. As the two other Wikipedia graphs below show, we have now returned to the extreme inequality of income that characterized the US a century ago.