Comment by AnthonyMouse | Hacker News Reader

Comment by AnthonyMouse | Hacker News Reader

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GDP is the aggregate of everyone's income, but the highest income earners have a disproportionate share by definition. The lowest tax brackets have never represented a large proportion of government revenue; they both pay lower effective rates and have less income. It's a decent proxy unless you expect that the tax rates paid by the upper middle class (e.g. the top 50% as opposed to the top 1%) have gotten dramatically out of proportion from what they used to be, but that isn't what happened.

You can find the raw data here though (Tables II: distributional series, you're looking for tab TG2b): http://gabriel-zucman.eu/usdina/

And then you can see that the highest effective income tax rate ever paid by the top 1% was 23.4% in 2001. The most current number from that table was 2019 when it was 20.3%. Whereas the highest rate from the mid-20th century period when they were alleged to have been paying such high income tax rates was 21% in 1945. In 1953, when the US had its highest marginal tax rates (92%), the effective income tax rate on the top 1% was 14%. Which is more typical for the period; 1945 was an outlier, it being the height of WWII.

The thing that has actually come down is not effective income tax rates on the top 1%, it's corporate income tax, which is a consequence of globalization. "Corporate income tax" is not a good fit for an international supply chain because tax avoidance and jurisdiction shopping is too easy if you're trying to tax something that only exists in a spreadsheet ("corporate profit") instead of something that has a definable physical location (goods, workers, real estate, etc.) So corporate tax avoidance is higher (because of transfer pricing etc.) and corporate rates are lower because it's easier for corporations to set up shop somewhere else if the somewhere else is taxing them less, which puts tax jurisdictions in competition with each other. But that's not an easy one to fix without abandoning globalization, so other taxes got raised to compensate (which brings us back to, government receipts as a percent of GDP haven't really changed).

Thank you for clarifying and providing that source, it's very informative.

The numbers I was looking at before were referring to the overall tax rate, which included both income tax and corporate taxes. With that said, the overall tax rate for the top 1% has gone down significantly since 1950 (from 45ish percent down to 32ish percent). As you mentioned, that is mainly due to the lower corporate income tax rate.

Given that drop in the overall tax rate (along with rising income inequality and increasing debt spending), it seems clear to me that the income tax rate was not raised enough to compensate for that loss but that's a separate discussion.

All this to say that - my original point that the rich were effectively taxed higher back then still stands, and government bureaucrats were not getting rich off of the higher tax rates either (that was a response to the person I originally replied to, not you)

> The numbers I was looking at before were referring to the overall tax rate, which included both income tax and corporate taxes.

Including corporate taxes in the overall rate doesn't make a lot of sense to do. Corporate taxes are on a different entity and who really pays them depends on the nature of the business.

For example, there are a lot of businesses that are simply capital intensive. You need to make a large investment in order to operate. Nobody is going to invest in them unless the returns can beat alternative investments like bonds, but that will be the after tax returns in both cases. Bond interest and dividends are both taxed, but corporate income tax is an additional tax, so with higher corporate taxes every company in that industry would have to generate higher profits to attract investors. So higher corporate taxes drive mergers/dissolutions, the market consolidates to give incumbents more market power and the tax mostly ends up getting paid by customers or employees rather than investors.

Conversely, if the market is already consolidated, it might mostly get paid by investors. But it also acts as a force to keep the market consolidated for the same reasons, which is not super great.

The point being, you can't just assume corporate taxes are always paid by the rich or the owners of the company.

> Given that drop in the overall tax rate (along with rising income inequality and increasing debt spending), it seems clear to me that the income tax rate was not raised enough to compensate for that loss but that's a separate discussion.

Income inequality has very little to do with tax rates -- it's often measured on the basis of pre-tax income, and has increased significantly even using that metric, largely as a result of market consolidation and regulatory capture. Incumbents that capture government regulators and exclude competitors become megacorps and then their executives and owners extract disproportionate income. Taxes rates have little to do with it.

The increased deficit spending is because the government is spending more money. Federal receipts as a percent of GDP are around the same, federal spending as a percent of GDP has gone up.

> government bureaucrats were not getting rich off of the higher tax rates either

But there weren't higher tax rates -- and the real measure of what there is to get rich off of would be government receipts, if not expenditures. Receipts are flat as a percent of GDP, but up quite a lot in real dollars and real dollars per capita as a result of growth in population and real GDP per capita. Spending is up even on top of that because of deficit spending. So the time they'd be getting rich isn't back then, it's right now.

Which they are. Of course, "they" are Lockheed and healthcare companies and members of Congress, but there's little doubt that it's happening.

> The point being, you can't just assume corporate taxes are always paid by the rich or the owners of the company.

I was just pulling the numbers off of the source you gave. I'm not sure what methodology they used to compute those numbers.

> Income inequality has very little to do with tax rates

Sorry, I meant wealth inequality. I agree with you that the wealth/income inequality we're seeing is mostly driven by the actual incomes of the rich vastly outpacing the middle/lower classes - what I meant is that a higher progressive tax rate should be deployed in order to help correct that problem.

> The increased deficit spending is because the government is spending more money

Yes, I'm aware. Again what I meant is that if we're going to continue to spend at the levels we are, and wealth inequality continues to grow at the rate it has, then it makes sense to increase the tax rate on the highest brackets.

> But there weren't higher tax rates --

There were though - according to your source.

> So the time they'd be getting rich isn't back then, it's right now

No argument there - but again my point is that they aren't getting rich from increased government taxes, they are getting rich by lobbying/regulatory capture.

> I was just pulling the numbers off of the source you gave. I'm not sure what methodology they used to compute those numbers.

It's Piketty/Saez/Zucman. They did a lot of work to compile the data but they have a particular conclusion they're trying to support, so the data is probably accurate but they're organizing it in a way that supports their position.

> I agree with you that the wealth/income inequality we're seeing is mostly driven by the actual incomes of the rich vastly outpacing the middle/lower classes - what I meant is that a higher progressive tax rate should be deployed in order to help correct that problem.

I don't think that really fixes it because it isn't the underlying cause. The problem here is market consolidation, e.g. Facebook is too big. So Zuckerberg has "billions of dollars" but in fact the vast majority of that money is in shares of that one company and what he really has is control over an enormous and disproportionately powerful corporation. Which is a problem, but taxes don't solve it, because the corporation is still just as big even if nobody has a controlling interest. Wall St would still put someone in charge of it and that person would still have massively disproportionate influence.

Whereas if you do something about the market consolidation then individual corporations don't come to be that size and their owners/executives don't come to have that much influence or money. So higher tax rates neither solve the problem nor are necessary if you do solve it.

> Again what I meant is that if we're going to continue to spend at the levels we are, and wealth inequality continues to grow at the rate it has, then it makes sense to increase the tax rate on the highest brackets.

The current level of spending is pretty useless. Indeed, it's actually one of the causes of the problem -- a lot of the money is going to the megacorps. It's probably better to stop giving it to them to begin with.

> There were though - according to your source.

On corporations, not rich people.

> No argument there - but again my point is that they aren't getting rich from increased government taxes, they are getting rich by lobbying/regulatory capture.

The thing they're lobbying for is the tax dollars. Lockheed and healthcare companies are getting rich from tax money. And the same for Congress, though the mechanism there is less direct. They allocate tax dollars to corporations that then funnel a portion of it back to the legislators in various ways.

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