Bush tax cuts helped the rich get richer
By Editorial Board,
WashPost
Monday, January 16, 6:35 PM
WHILE FEW QUESTION the fact that income inequality has risen in the United States over the past three decades, there is plenty of dispute about why. Some argue that the upward shift in after-tax income reflects a high-tech society’s increasing rewards to highly skilled workers, or the rise of super-paid “superstars” in everything from finance to sports, or the decline of labor unions and the minimum wage.
Another concern is that the lighter federal taxation of capital gains and other investment income relative to ordinary income has skewed income distribution upward. This is related to the so-called “Buffett Rule,” whereby the Omaha billionaire (and former Washington Post Co. board member) Warren Buffett pays income tax at a lower effective rate than his secretary does, largely because so much of his income comes from investments.
Now comes evidence that this is, indeed, at least part of the story. A report by the nonpartisan Congressional Research Service shows that, between 1996 and 2006, the share of total after-tax income attributable to dividends and capital gains grew by 40 percent, faster than any other category. Earned mostly by the well-to-do, investment income was the largest contributor to the increase in income inequality between 1996 and 2006, according to CRS.
The tax cuts enacted at the urging of President George W. Bush magnified what CRS calls the “disequalizing” impact of this shift. The 1986 tax reform eliminated the gap between the ordinary and capital gains rates. The gap began to widen again during President Bill Clinton’s second term, but the Bush tax cuts of 2003 blew it wide open by slicing the top rate on dividends and long-term capital gains from 28 percent to 15 percent. The tax code as of 2006 was still progressive, in that top earners paid a greater share of their income to Washington than everyone else. But thanks largely to the more favorable treatment of investment income, the code was significantly less progressive in 2006 than it was in 1996, CRS found.
(More here.)
WashPost
Monday, January 16, 6:35 PM
WHILE FEW QUESTION the fact that income inequality has risen in the United States over the past three decades, there is plenty of dispute about why. Some argue that the upward shift in after-tax income reflects a high-tech society’s increasing rewards to highly skilled workers, or the rise of super-paid “superstars” in everything from finance to sports, or the decline of labor unions and the minimum wage.
Another concern is that the lighter federal taxation of capital gains and other investment income relative to ordinary income has skewed income distribution upward. This is related to the so-called “Buffett Rule,” whereby the Omaha billionaire (and former Washington Post Co. board member) Warren Buffett pays income tax at a lower effective rate than his secretary does, largely because so much of his income comes from investments.
Now comes evidence that this is, indeed, at least part of the story. A report by the nonpartisan Congressional Research Service shows that, between 1996 and 2006, the share of total after-tax income attributable to dividends and capital gains grew by 40 percent, faster than any other category. Earned mostly by the well-to-do, investment income was the largest contributor to the increase in income inequality between 1996 and 2006, according to CRS.
The tax cuts enacted at the urging of President George W. Bush magnified what CRS calls the “disequalizing” impact of this shift. The 1986 tax reform eliminated the gap between the ordinary and capital gains rates. The gap began to widen again during President Bill Clinton’s second term, but the Bush tax cuts of 2003 blew it wide open by slicing the top rate on dividends and long-term capital gains from 28 percent to 15 percent. The tax code as of 2006 was still progressive, in that top earners paid a greater share of their income to Washington than everyone else. But thanks largely to the more favorable treatment of investment income, the code was significantly less progressive in 2006 than it was in 1996, CRS found.
(More here.)
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1 Comments:
Taxation is necessary to pay for our government. Taxation should not be a tool to ‘manage’ income distribution (up or down).
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