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Argument: Progressive taxation combats growing income inequality

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Clive Crook. "The Height of Inequality". The Atlantic. September 2006 - Here are some results from Ian Dew-Becker and Robert Gordon of Northwestern University. Between 1966 and 2001, median wage and salary income increased by just 11 percent, after inflation. Income at the 90th percentile (six minutes from the end of the hour-long parade) increased nearly six times as much—by 58 percent. At the 99th percentile (the last thirty-six seconds), the rise was 121 percent. At the 99.9th percentile (3.6 seconds before the end), it was 236 percent. And at the 99.99th percentile (0.36 seconds, representing the 13,000 highest-paid workers in the American economy), the rise was 617 percent.

That is worth repeating: Over thirty-five years, the rise in wages and salaries in the wide middle of the income distribution was 11 percent. The rise in wages and salaries at the top of the income distribution was 617 percent.

This is (pretax) wage and salary income, not investment income. Many commentators attribute rising American inequality to growth in profits at the expense of salaries and wages. That’s wrong: labor’s share of national income does not seem to be trending up or down. What has changed is how much of labor’s share goes to top earners. Since the mid-1970s, and especially since the mid-1990s, the dramatic rise in the share of national income earned by the very rich is due not to the strength of their investment portfolios but to their growing share of labor income.

Govind S. Iyer, Ananth Seetharaman. "An analysis of the distributional effects of replacing the progressive income tax with a flat tax". Elsevier Science Inc. 1996 - Abstract: Our study investigates the distributional effects of replacing the current income tax system with two prototype flat tax systems: 1) the Armey-Shelby-Craig flat tax proposal, and 2) the Specter flat tax proposal. Our analysis indicates that replacing the current income tax system with either flat tax system would result in a modest increase in the average tax rate for taxpayers in the first income decile. For the remaining taxpayers, such a switch results in reductions in the average tax rate that tend to increase as income increases. We also found that for taxpayers reporting business income: 1) the current income tax system is most progressive, and 2) both flat tax systems are partially regressive. For taxpayers reporting no business income, however, the Armey-Shelby-Craig system is most progressive. Both flat tax proposals moderate before-tax income inequality modestly, but neithe moderates income inequality as effectively as the current income tax system.

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