More Tax Data

From the CBO. This data includes Social Security taxes and more.

CBO's most recent estimates of federal effective tax rates (taxes as a percentage of income) across household income groups for the four largest sources of federal revenues--individual income taxes, social insurance (payroll) taxes, corporate income taxes, and excise taxes--as well as the total effective rate for the four taxes combined.

One of their tables is fairly damning on income inequality, showing that the top 10% have gained 10.5% of after tax income shares ("the pie"), but 8.8% of that pie increase has gone to the top 1%. So the "semi-wealthy" haven't really gained much of the pie, only the super-wealthy.

More interesting (to me) than share of the pie is actual income. Lets see what has happened between 1979 and 2006. This data has been adjusted for inflation, which was roughly 2X in that period. Note: they adjust for household size in a way I don't really understand.

For pretax income, all quintiles are positive. The income increases are 6%, 12%, 15%, 26%, and 82%. The rich have clearly done much better, but at least everybody is positive. The top 5% has seen an increase of 133%. The disparity in the increase between the top quintile and the bottom is 82/6. which is 13.7. The disparity between the top 5% (the "rich") and the bottom quintile (the "poor") is 133/6, or 22. In other words, the rich have seen their pre-tax income increase 22 times as much as the poor.

For after tax income, the increases are all positive and more even, 11%, 18%, 21%, 32%, and 86%, with the top 5% at 142%. The two disparities are far smaller, 7.8 and 12.9. The rich have seen after-tax incomes increase less, "only" about 13 times as much as the poor.

Conclusions:

1. There has been a large increase in income disparity in the past 25 years. IMO, this is a bad thing. However, I think this has happenned worldwide, not just in the USA.
   
2. Tax policy (the infamous Reagan / Bush "tax breaks for the rich") have not added to this disparity. Current tax policies decrease the disparity numbers from 13.7 to 7.8, and from 22 to 12.9. In other words, the current tax policies reduce the disparity by about half.
3. We should, IMO, do something about income disparity. But we cannot blame the disparity on tax policy. It is pre-tax income that seems to be the problem.