Pissing Down Your Leg

Thoughts on Economics and Economic Policy

The CBO Makes the 99%’s Point: They’re Eating Our Pie!

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The CBO very thoughtfully made what I believe is the main point of the OWS protesters. The main income growth over the last 30 years has gone to only the top 1 percent of the income distribution, leaving everybody else only marginally better off than we were three decades ago.

The growth in (after-tax!) income by quintile is striking:

Growth in Real After-Tax Income from 1979 to 2007

Source: Congressional Budget Office

The first four quintiles have seen less than 50% growth over 30 years, or less than 1.4% per year. And as you can see that’s much smaller for the bottom 40% who have seen income grow less than 1% per year. Meanwhile the top 1% has seen after tax income grow by 270% over the same time period, or 3.6% per year.

That means that every group except the 1% have seen their slice of the American pie shrink between 1979 and 2007.

Shares of Market Income, 1979 and 2007

Source: Congressional Budget Office

I’m just glad that the 99% is finally waking up and demanding that we do something about it. So while I’m no protester (I’m much to soft and squishy), here are a few suggestions:

  • Increase the marginal tax rates, especially on the top 1% (my next post will expand on this).
  • Put a Tobin tax on financial transactions, say $0.05-$0.10 per share (or the equivalent).
  • Pass a constitutional amendment that says all federal elections are to be financed with only public funds.

Growth in GDP per capita comes from the entire economy. It comes from businesses competing for your dollar and coming up with new products and better ways to make old products. It can be strong when the top marginal tax rate is 90% (as it was in the 1950s) or when it is 39% (as it was in the 1990s). It can come when the top 1% is getting 7% of the national income and when it is getting 15% of the national income. We simply have to choose which world we want to live in.

I believe the three suggestions above will slow the growth of the top 1 percent’s income, reduce the size of the financial sector, and make the government more accountable to voters rather than those who donate. That’s the world I want to live in.

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Written by Liam C Malloy

October 27, 2011 at 9:45 am

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