Do see this (original report here) on rising economic inequality by state. Interestingly, the analysis excludes capital gains, which of course are extremely concentrated among the wealthy. So it will substantially understate overall income inequality.
When I have time, I will put together a more detailed post regarding income growth trends since Reagan.
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This may or may not be a Natale-brand non sequitur, but it would be interesting to overlay the rising tuitions of "premiere" US universities.
ReplyDeleteAm I imagining things, or did I hear the price of higher education significantly rose over this same stretch of time?
Perhaps student loans kept up the pace so that lower middle and working class families maintained the same level of (difficult) access to college.
Or perhaps not.
I would like to revisit the capital gains tax issue in light of increasing income disparity.
ReplyDeleteIt seems to be that the capital gains tax issue may have some other issues at play, so I would like to start with an offshoot that seems more reprehensible and easier to address. Stock dividends are taxed at a maximum rate of 15%. I understand that the rationale for low capital gains taxes are to increase investment, but taxing dividends at this same low rate does nothing but create an artificial preference for high dividend yielding stocks. At those rates it makes almost no sense for anyone to keep money in the bank as companies that have proven to slowly appreciate capital (consumer staples, multinational conglomerates...Pepsico, Proctor, Clorox, all the tobacco and alcohol brands..etc) pay dividends that are comparable or significantly higher (adjusted for the different tax rates) than their alternative CD and savings account yields. Many of these stocks offer this income stream with capital appreciation and low risk in comparison to most equities. Of course, only the very wealth, their accountants, and savvy financial planners take advantage of this large loophole which greatly contributes to widening income disparity. If I had $1,000,000 I could easily create a stock portfolio with comparable risk/reward profile to the Dow Jones Industrials or S&P 500 which will yield between $50,000 and $80,000 in income a year and be taxed at just 15%. This is absolutely absurd.
As to the broader issue of capital gains, I certainly agree that the rates are far too low, but I think the psychological effect on investors with significant gains should be measured. Particularly I can imagine a scenario where long-term equity holders
facing a sharp increase in the capital gains tax rate may be less likely to sell their stocks and pay their taxes. People in position to reap capital gains by definition have been holding on to stocks for several years. Many of them may decide to hold on to the stocks for eternity while their capital appreciates and they collect dividends. At some point that is beneficial to them, they will make gifts of stock until it becomes a death tax issue, instead of a capital gains one.
I wonder how capital gains compare in eras of varying capital gains tax rates. It would be particularly interesting to see a comparison in gains the first year the rate decreased to 15%. I surmise that robber barons and their offspring saved up a tremendous amount of paper gains that they were saving for a rainy day when the tax rate would be more favorable and cashed out at that time.
To the extent I understand what you are talking about, I agree.
ReplyDeleteOn a personal note:
Should I be worried as a 27 year-old male and descendant of upper middle class parents that I have no stocks or credit cards and haven't the faintest idea about personal investment and finance, other than knowing how to fill out my tax forms?