In a different article, I exposed the myth of income inequality, rhetoric that is constantly being repeated by the Obama administration and the media. Using data from the CBO and the IRS, Ron Schmidt of the University of Rochester School of Business was able to dissect and expose the inaccuracies being perpetuated. The Left frequently cited a CBO report that claimed to show income was at an all-time high, but it was revealed that reported only represented data until 2007 — right before the Great Recession began. The article is worth a two minute read.
Picking up where the CBO data left off, the newest CBO report confirms that that income gap is indeed shrinking — not expanding as we are constantly being told. According to CNBC,
Between 2007 and 2009, after-tax earnings by Americans in the top one percent for income fell 37 percent. On a pre-tax basis they fell 36 percent in the same period.
and at the same time,
when you take into account federal transfers, assistance and taxes paid, the incomes of the bottom 20 percent grew by 3 percent, while it fell a modest 2 percent for the middle 20 percent. In other words, the incomes of the top one percent fell 18 times more than the incomes for the middle class at the start of the recession.
The article goes on to show that the amount of taxes paid by upper-income earners is also higher now than before the Great Recession. Although the author was incorrect that the current highest level tax margin is the lowest rate ever (it was lowered in the 1986 IRC reforms to 28% ), he correctly concludes that the highest earners
paid an average effective tax rate of 28.9 percent on their income — far more than any other group, and more than twice the average effective rate of the middle class, who paid 11 percent on average.
Overall, a good analysis to help refute the continuous income inequality argument used as a justification to raise taxes on the wealthy in order to pay for the government’s overspending problem.
Several weeks ago, I reported that Britain’s plan to raise additional government revenue by levying higher income taxes was a failure. British officials were shocked that hiking the rates of the wealthiest citizens to 50% resulted in less tax collected.
As CNBC reports,
Britain has already hiked taxes on the rich to 50 percent but amid a weak economy and reports of wealth flight, the tax was ratcheted down in April to 45 percent
Now, in full panic money-grab mode, the newest lucrative idea is to collect an “emergency wealth tax” — which taxes not the income, but the wealth, of Britain’s most successful folks.
Deputy Prime Minister Nick Clegg explained the decision:
He told the Guardian that unless the country “hardwired fairness” into the budget, “I don’t think the process will be either socially or politically sustainable or acceptable.”
Stop and re-read that again. Hardwired fairness into the budget.
How can directly taking extra money from one segment of the population in order to pay for the spending and policy failures of a group of officials, possibly be fair?
No matter how you spin it, explain it, try to justify it, this is legal plunder — pure and simple. Bastiat was right.
American incomes declined more in the three-year expansion that started in June 2009 than during the longest recession since the Great Depression, according an analysis of U.S. Census Bureau data by Sentier Research LLC.
The economic stagnation is due to a prolonged jobless rate above 8%, coupled with long-term unemployment. Just about every age group experienced income decline, with the exception of those over 65. The hardest hit were the 55-64 bracket.
Real median annual household income fell to $53,508 from $54,916 during the 18-month recession from December 2007 to June 2009, according to the firm’s study of income data for the 36- month period ended in June 2012. Incomes kept falling during the 36-month period since then, dropping to $50,964 in June 2012.
The debate continues as to whether or not the recession ever ended, or if we are about to enter a new recessionary period.
During the State of the Union, we heard President Obama talk repeatedly about fairness and taxes as he painted a picture of income inequality. The problem is that income inequality really is a myth, yet it is being perpetuated: the gap between rich and poor has never been higher.
The data used most frequently to substantiate this claim is a Congressional Budget Office (CBO) report from October 2011. However, the glaring problem with this report is that it only covers the period from 1979 to 2007 — ending right before the Great Recession. Convenient?
So in November, Ron Schmidt of the University of Rochester School of Business Administration, did an analysis of the CBO data and compared it to IRS data during the same time period — but through the year 2009, the latest year for which IRS data was available. He found something very, very different. In a reported summary,
According to IRS data, which extend through 2009, the average nominal Adjusted Gross Income (AGI) for filers with AGI of at least $500,000 declined by 17.8 percent from 2007 to 2009, and their average after-tax income declined by 19.9 percent. For those with AGI of less than $500,000, AGI declined by only 2.6 percent, and after-tax income declined by only 1.5 percent. These numbers certainly do not indicate an increase in income inequality.
In fact, there has been a marked decline in income inequality over the last decade. From 2000 to 2009, average AGI declined by 15.0 percent and average after-tax income declined by 11.0 percent for returns with AGI of at least $500,000. (Filers with an AGI of at least $500,000 represent 0.5 percent of all returns in both years, so this comparison is similar in spirit to the CBO report, which looks at the top 1 percent of households.) For all other returns, there were increases of 14.6 percent for average AGI and 17.3 percent for average after-tax income.
It revealed that income inequality is not only not at an all-time high, but also, due to the nature of economic and business cycles, it is relatively the same as it was twenty-five years ago.
The repeated calls for fairness last night reminds one of Margaret Thatcher’s famous speech in front of the House of Commons where she lambasted her opposition for suggesting that the gap between rich and poor had widened. The Prime Minister People responded that “people on all levels of income are better off than they were in 1979. The honorable gentleman is saying that he would rather that the poor were poorer, provided that the rich were less rich. That way one will never create the wealth for better social services, as we have. What a policy. Yes, he would rather have the poor poorer, provided that the rich were less rich. That is the Liberal policy”.
Liberal policy indeed is alive and well in America today. Thankfully, income inequality is not.
Though Obama may be pretending to draw a line in the sand between himself and the Republicans, he is really drawing a line for voters: Them vs The Rich Guy (millionaires and billionaires, anyone?) Setting up the narrative in the State of the Union for the year has allowed Obama to pander to the electorate during this campaign season and relentlessly go after those who have proven to be successful as a source of increased tax revenue to cover his spending problem.
In a recent interview with Entertainment Tonight, President Obama made the following remark: (h/t to RCP).
“We’re going around the country, talking about, ‘How do we put people back to work? How do we improve our schools? How do we make sure that we’re producing American energy? How do we lower our debt in a responsible way?’ And I don’t think you or anybody who’s been watching the campaign would say that in any way we have tried to divide the country. We’ve always tried to bring the country together,”
Last week, I noted that Obama announced he wants to bailout all the industries. To quoth:
“I said, I believe in American workers, I believe in this American industry, and now the American auto industry has come roaring back,” he said. “Now I want to do the same thing with manufacturing jobs, not just in the auto industry, but in every industry.
Now, the Treasury Department issued an updated report today on the auto industry bailout.
The Treasury Department says in a new report the government expects to lose more than $25 billion on the $85 billion auto bailout. That’s 15 percent higher than its previous forecast.
The government still holds 500 million shares of GM stock and needs to sell them for about $53 each to recover its entire $49.5 billion bailout.
Shares today were at $20.49
I guess Obamanomics is the only place where a $25 Billion loss of taxpayer money is considered “a success” and “roaring back”. The spin is that the losses are less than the estimated $44 Billion, so hey, it’s okay! We saved the taxpayers $19 Billion!
By around Election Day, the total debt of the United States will be $16,394,000,000,000.00 ($16.394 trillion).
Last time, we marked the 1000 days without a budget.Now it’s 1200 days. Did you know that Obama’s term as President is officially 1461 days? Almost the entirety of his administration has been operating without a budget.
I hope Mitt Romney will hammer this point home today during his VP rollout.
A great pick to hammer home the economy and tax reform, and Ryan is one of the few in Congress to have presented a detailed plan to get us back on track in America.
“I said, I believe in American workers, I believe in this American industry, and now the American auto industry has come roaring back,” he said. “Now I want to do the same thing with manufacturing jobs, not just in the auto industry, but in every industry.
The new Socialist President, Francois Hollande, announced the latest “get rich quick” scheme for France: impose a 75 percent tax on the portion of anyone’s income above a million euros ($1.24 million) a year. Under the guise of Patriotism, Hollande is seeking that the rich “pay extra tax to get the country back on its feet again.” Parliament will consider the initiative next month as a means to improve France’s finances as the Euro crisis rages on in Europe.
Unfortunately, this should come as no surprise to France’s wealthiest. Mr. Hollande has matter-of-factly stated, “I don’t like the rich”, and now he has a measure to put money where his mouth is. As the NYTimes reports:
Taxes are high in France for a reason: they pay for one of Europe’s most generous social welfare systems and a large government. As Mr. Hollande has described it, the tax plan is about “justice,” and “sending out a signal, a message of social cohesion.”
Outrageous.
While some support Hollande’s proposal, others are rightly concerned with the Laffer Curve effect; namely, that increasing tax rates beyond a certain point will be counterproductive for raising further tax revenue. Indeed, such a result was seen most recently in England this past spring; as a money-grab measure, the highest tax margins were increased to a 50% tax on the wealthy. I wrote about this last month, when income tax and capital gains revenue receipts were down after the implementation of the controversial measure — and much of England’s leadership was surprised at the result.
Thomas Sowell observed quite aptly: “I have never understood why it is “greed” to want to keep the money you’ve earned, but not greed to want to take somebody else’s money”.
Yes, Hollande’s attitude and tax plan will drive away more businesses and investors from France’s already fledgling economy, because the highest income earners will have had enough. The last time a socialist was elected President in France — Monsieur Francois Mitterrand in the 1980’s — there was some flight of the wealthy from the country. Expect to see the same result if such a crushing and counter-productive piece of legislation passes in September.
In that case, let the capital flight commence to the USA!
