Rich Americans are getting richer and the poor are getting poorer. The top 20% of Americans have been enjoying most of the economic gains over the last decade, but the median net worth of most Americans has actually decreased.
The estate tax has been watered down to the point where only a few hundred Wisconsin estates paid the tax each year, according to a new report from Citizens for Tax Justice. President Obama has proposed making the estate tax rules that were in effect in 2009 permanent starting in 2013. If his proposal is passed into law, estates of individuals worth up to $3.5 million (effectively $7 million for a couple) would not pay any estate taxes, and the number of wealthy Wisconsin estates paying the tax would remain tiny. Read more
The estate tax has been gradually phased out over the last decade, to the point which just 290 Wisconsin estates owed the tax in 2009, or about 1 out of every 167 estates. That’s down considerably from 2000, when 803 Wisconsin estates paid the tax, or 1 out of every 59 estates. In 2013 the tax is slated to return to its 2001 levels, with exemptions of $2 million per couple.
The top 1% more than doubled their share of the nation’s income between 1979 and 2007, according to new figures released by the Congressional Budget Office. Several factors in both the private and public sector are driving the income inequality, including rapidly increasing CEO salaries, the growth in the number of high-earners in the financial services sector, changes in the way income is taxed, and changes in the makeup of beneficiaries of government programs.
Thirty years ago, income inequality in the U.S. was much less dramatic. In 1979, the top 1 percent of the population earned just under eight percent of after-tax household income, compared to 17 percent in 2007. Here’s a breakdown of income growth between 1979 and 2007:
- For the top 1 percent, after-tax household income grew by 275 percent in inflation-adjusted dollars
- For the remainder of the top 20 percent, income grew by 65 percent.
- For the individuals in the 20th through the 80th percentile, income grew by 40 percent
- For the bottom 20 percent, income grew by only 18 percent.
Can we help fund the creation of jobs by increasing the amount of taxes paid by the well-off? Senator Harry Reid thinks so. He has proposed a “millionaire’s tax,” which would impose a 5.6 percent surtax on those who earn over $1 million a year. In Wisconsin, 0.1 percent of taxpayers would be subject to the surtax, according to an analysis by Citizens for Tax Justice.
The additional revenues raised by the surtax would pay for President Obama’s proposed American Jobs Act, a package that includes $447 billion in tax cuts and new spending aimed at increasing employment and upgrading infrastructure across the country. On Tuesday, the American Jobs Act failed to pass the Democrat-controlled Senate, and Sen. Reid has said he will break up the Act and try to pass individual pieces.
At the state level, Rep. Cory Mason (D-Racine) has proposed similar legislation Read more which would increase taxes on people earning more than $1,000,000.
Policymakers commonly cite the fear of tax flight – the idea that rich taxpayers will pull up stakes and move to a state with lower taxes, taking their wealth with them – as a reason to keep taxes low on upper-income earners. A new report by the Center on Policy and Budget Priorities blows a hole in that theory.
It turns out that taxes are far down the list of why people move. Access to jobs, cheaper housing, and a better climate are the main reasons why people move – and even those reasons aren’t very common. Just 1.7 percent of people moved across state lines between 2001 and 2010, and about 70 percent of those born in the U.S. live in the same state for their whole life.
A tale of two states, New Jersey and Florida, demonstrates the folly of the tax migration myth. In New Jersey, a tax increase on filers with income over $500,000 went into effect a few years ago.
Black and Hispanic households were disproportionately affected by the recession, a new report by The Pew Research Center shows. The median white household now holds 20 times the wealth of the median black household, and 18 times the wealth of the median Hispanic household. This represents the widest gap in wealth among racial groups since the federal government started collecting the figures 25 years ago. Read more
Black and Hispanic households lost a much bigger share of their household wealth during the recession than did white households. From 2005 to 2009, household wealth for Hispanics fell by 66 percent (when adjusted for inflation), and by 53 percent for black households. In comparison, median wealth for white households fell by just 16 percent. Roughly a quarter of all Hispanic (24%) and black (24%) households in 2009 had no assets other than a vehicle, compared with 6% of white households. The chart below shows changes in median household wealth in dollar amounts by race, pre- and post-recession.
Quickly growing CEO pay is a significant contributor to income disparity, according to a recent Washington Post article that ran in the Milwaukee Journal Sentinel. Executive pay has increased fourfold since the 1970s according to the article, while the average worker pay remained relatively flat. Of the top 0.1% of earners in 2008, 59% were CEOs, managers, or financial professionals. This top 0.1% of earners took in more than 10% of total personal income in the U.S.
A number of recent public policy decisions at the federal and state level also contribute to and reinforce income disparity. The Bush tax cuts are among the policies that predominantly help high earners. In a recent blog post, the Wisconsin Budget Project highlighted Read more a new report showing that the top 1% of income earners in the state alone receive 28% of all the Bush tax cut dollars in Wisconsin, almost twice the combined tax savings of the lowest three-fifths of income earners (whose share of the Wisconsin total is just 15%).
Despite widespread concerns over falling revenues and significant cuts in education, health care, and other areas, the budget passed last week by the Assembly and Senate contains a number of new or expanded tax breaks, at a cost of more than $90 million over the biennium and $1.6 billion over the next 10 years. Two of these tax breaks are targeted to benefit Wisconsin investors by reducing taxes on capital gains (i.e., the profits resulting from the sale of stock, businesses, real estate, or other assets). These tax breaks recently received attention from the Capital Times’ Mike Ivey, who wrote about the tenuous connection between these tax breaks and increased economic growth in Wisconsin, as well as the regressivity of these new tax cuts. Read more
This blog post describes the two capital gains tax breaks that were just approved by the Legislature and two other pieces of legislation that would also increase the preference given to income generated by investments, relative to income from one’s own labor.
A couple of industry-backed studies that have come out over the two months cast Wisconsin in a positive light – as a place to do business and make money. As we discussed in a blog post on April 27, a study by Ernst and Young, in conjunction with the Council on State Taxation, ranked Wisconsin as having the 4th lowest state and local taxes on investments made in a new facility or for upgrading an existing facility.
A more recent study contains data estimating the percentage increase in millionaires over the next decade in each state, and it projects that growth to be 12th highest in Wisconsin. According to the industry-sponsored analysis, Wisconsin’s increase is supposed to be 131%, well above the national average of 110%.
The Oregon Center for Public Policy posted an interesting and informative commentary Read more on the study’s findings and their implications for the public policy choices facing that state.
Do high taxes drive people to move to lower-tax states? Two new studies highlighted today on National Public Radio examine different angles on this perennial issue, both coming to similar conclusions.
Researchers at the Political Economy Research Institute at the University of Massachusetts, in their new report, The Impact of Taxes on Migration in New England, addressed the question of whether high taxes drive residents to move. If you can make it past the equations like this…
…and skip to the end, you can find their conclusion (emphasis mine):
“Evidence from surveys of migrating households, the existing economic literature, and the new analysis in this paper all suggest that taxes do not play any notable role in causing people to leave a state. The most important factors in influencing household migration are economic and family-related reasons. If anything, higher state income taxes are shown to decrease the numbers of people leaving a state.