Tuesday, April 7, 2009

The Widening Fiscal Gap


This article by Clive Crook is pretty weak:

Mr Obama intends to squeeze the rich, but the scope for this may be more limited than US liberals would wish. Few Americans seem aware that the US income tax code, as a recent Organisation for Economic Co-operation and Development study showed, is already one of the most progressive.* Even before the rise in top marginal rates promised by Mr Obama, the US income tax collects 45 per cent of its revenues from the highest-income decile. Compare that with Britain at 39 per cent, Canada at 36 per cent, France at 28 per cent, Sweden at 27 per cent and an OECD average of 32 per cent.

Hmm, I wonder if that has anything to do with the fact that incomes for the vast majority of Americans have been stagnant for 30 years, while incomes have risen astronomically for those in the top 10% of earners. Take a look at these charts:

The above chart shows the median household income according to the US census, adjusted for inflation using CPI.

This chart shows the US income per person, an increase of 80% using inflation adjusted numbers. Since median household income has barely increased, this large increase in overall income (total income divided by number of people) means that all that extra income has gone to a small group of top earners.

Crook's article accuses the middle class of not providing their fair share, while at the same time writing a sob story about how much the top earners are paying in taxes. Please. To suggest that the President should do something about this now (read: raise taxes on the middle class) is bad policy, bad economics and bad politics.

The real gap Crook should take a shot writing about is the growing gap between the top earners and the middle class. Once some balance is returned there, while being careful not to penalize the successful, the economy will take off again (a strong middle class has money to spend) and then the focus can turn to balancing the budget.

One note: The article I linked to above (where these charts came from), tries to debunk the data using some voodoo math (modifying the inflation rate and redefining what household means). Ignore it, I just wanted to provide the source of the data.


Post a Comment

Our Deal

The markets are crashing, thousands of people are losing their jobs and the government keeps funneling money into broken banks. This little blog will help explain why this is happening and how we fix it.

I'd like to preface this experiment with a contract between myself and my readers. My promise to you is that I will be civil, non-ideological, well researched and honest. In return, I only ask that you think.

Send questions to: ouremptywallets@gmail.com

Quick Search

Recent Comments