Thomas Hungerford of the Congressional Research Service (a non-partisan organization that does policy studies for Congress) points out that the lowering of capital gains taxes from 1991 to 2006 were a huge driver in the increases in inequality that have happened over the last 20 years. The time frame is important, as capital gains were taxed at 28% in 1991, but that rate had dropped to 15% by 2006, giving an indication of how the changes in policy affected outcomes.
Clue number 1 comes from the declining importance of wages when it comes to overall output and income.
Wages are by far the largest source of income, but accounted for a smaller share of income in 2006 (77 percent) than in 1991 (92 percent). In addition, the wage share appears to be counter-cyclical—the share is higher in the recession years of 1991 and 2001 than in the expansion years of 1996 and 2006. Interestingly, the decline in the wage share during the economic recovery after the 2001 recession (2001 to 2006) was considerably larger than the decline during the years after the 1990–91 recession (13 percentage points versus 4 percentage points).That last point is VERY interesting, because in the 1990s, President Clinton had tax rates raised on the richest earners, while in the 2000s, President Bush had the income tax rates cut for the highers earners.
And the flip result happens for capital gains as a percentage of income- it went up as the tax rates on the rich went down.
Capital gains and dividends as a share of income increased from 5.4 percent in 1991 to 15.6 percent in 2006—a 287 percent increase. The capital gains and dividends share appears to be pro-cyclical, increasing during the expansions and falling during recessions. Business income also greatly increased as a share of income between 1991 and 2006 by 265 percent (from less than 2 percent in 1991 to over 5 percent in 2006). There does not appear to be a strong cyclical pattern to the trend in the business income share. Overall, income from capital increased as a share of income from 16.7 percent to over one-quarter over this 15-year period.So when tax rates on the rich have been higher, workers tend to receive a bigger share of income than if tax rates are lower, and the rich are more likely to hoard or speculate their added incomes on things that generate capital gains instead of paying the workers that made it possible. In other words, the exact OPPOSITE of trickle-down happened in the 2000s- the extra money went away from those who work, not toward them.
And Hungerford lays this out in simple terms later in the paper, describing the effect of tax policies on the Gini Coeffifienct, which measures inequality in a country (the higher it is, the more unequal the distribution of income is).
Consequently, changes in wages had an equalizing effect on income inequality (i.e., reduced the Gini coefficient). Most of the equalizing effect occurs over the final 5-year sub-period. Changes in capital gains and dividends are the largest contributor to the rise in income inequality over the 15-year period, with most occurring between 2001 and 2006. Changes in taxes had an equalizing effect on overall inequality between 1991 and 2006. Most of this equalizing effect occurred between 1991 and 1996 due the [Clinton] tax increase; the 2001 and 2003 Bush tax cuts had a disequalizing effect between 2001 and 2006.This trend toward higher inequality has continued since Obama has taken office, in no small part since the Bush tax rates have also stayed in effect during this time. The left-leaning Economic Policy Institute released a study last month showing that the richest Americans have been virtually the only group to have their incomes grow during the first 2 years of our recent recovery.
Those at the top are seeing their wages rebound quite strongly in the recovery. Following a 15.6 percent decline from 2007 to 2009, real annual wages of the top 1.0 percent of earners grew 8.2 percent from 2009 to 2011.The study goes on to note that this continues a trend that started with the Reagan years where the richest 1% of income earners grab more and more of the pie.
The real annual wages of the bottom 90 percent have continued to decline in the recovery, eroding by 1.2 percent between 2009 and 2011.
And the same disconnect between wages and incomes is happening here in Wisconsin. Almost every bit as important as the Walker Administration's admission that even their favorite job stat shows Wisconsin's year-over-year job growth was cut in half in the 3 months after the recall election, is the fact that it also showed a drop in wages.
Wage information: Total wages by covered employers, including private and public, experienced a 1.8% decline in the 13-week third quarter of 2012 as compared to the 14-week third quarter of 2011. Included is a 6.2% percent decrease in covered government employer wages, reflecting the phase-in of additional public employee retirement and health insurance contributions for state and many local government employers during the third quarter of 2012.So you might think that a results-oriented administration would try to do things that would lessen inequality and increase the chances of funds going to the working class over the idle rich. And when it comes to the Walker Administration, YOU WOULD BE WRONG, MY FRIEND. In fact, these assclowns want to increase this losing trend.
Check out the rundown from the Wisconsin Budget Project as Walker's first budget was on the verge of passing in 2011.
The first investor tax break provides a deferral on capital gains taxes if the profits are reinvested in Wisconsin businesses. Under this provision, investors can sell off assets and reinvest the proceeds without being taxed on income from profits. Investors would only have to pay taxes on these profits after the new, Wisconsin-based assets are sold. The cost of this provision is $36.3 million over the next two years and $197.9 million over the next 10 years.And this doesn't even include the tax increase given to low-income working Wisconsinites in 2012 due to the lowering of the Homestead and EITC credits.
Under the second tax break, investors would pay no state taxes on profits resulting from the sale of Wisconsin assets if purchased in 2011 or later and held for at least five years. Because of the five-year holding rule, this provision would not cost taxpayers until fiscal year 2017, when the state would lose $6 million in revenue. The full price-tag of this provision will come into effect in fiscal year 2021, when it is expected to cost $79.4 million annually.
We can predict who would take advantage of these new tax breaks by seeing who benefits from similar tax breaks that already exist. Under current Wisconsin tax law, 30% of capital gains are exempt from taxation (60% in the case of farm assets). The chart below, based on our analysis of data from the Wisconsin Department of Revenue and Legislative Fiscal Bureau, shows how much individuals of different income levels take advantage of the current exclusion on capital gains.
•Those making $200,000 or more make up less than 2% of all tax filers, but account for more than 46% of all profits excluded from taxes.
•Those making $90,000 or less – 88% of all tax filers – account for only 36% of all excluded profits.
Walker has now added to this trickle-down foolishness by sticking his nose into the federal fiscal fights, and saying that the sequester isn't the best way to handle the country's deficit (I'm sure this has nothing to do with the $188 million hole that would open up in his budget if it were to go through). No, Scotty would rather cut Social Security and Medicare benefits to the same individuals who have had their pensions slashed and stolen. And they were slashed and stolen by the same lucky few who have greatly benefitted from the last 30 years of "profit-over-pay" tax policy that has gone a long way toward explaining the mess that we're still trying to drag outselves up from.
The jury has been back on this one a while- trickle down economics does nothing but steal from the vast majority of us who actually do work and gives money to those who don't need the help. But politicians like Scott Walker (who has never had a real job for pretty much his whole adult life, and has only created jobs for cronies who kiss his ass) are still trying to cling to this failed philosophy. It needs to be put into the dustbin of history NOW.