Income and Tax Inequality (Part 1)

I’ve been reading an interesting book lately: The Triumph of Injustice, by Emmanuel Saez and Gabriel Zucman. I’m not going to address their political agenda because I want to try to keep this web site apolitical. The book’s subtitle will tell you where they stand: How the Rich Dodge Taxes and How to Make Them Pay.

Regardless of your political leanings, the authors cite some statistics that were very surprising to me, as they may be to you.

First, let’s compare what percentage of all income received by people in the United States goes to the rich and how much goes to those who are less well off. In 1978, those in the top 1%—in other words, those who make more money than 99% of the people in this country—received about 11% of all income generated in this country (which the authors call the national income). Today that group receives about 20% of the national income. Conversely, those in the bottom 50% received about 20% of the national income in 1978, but only about 12% today. So the rich really are getting richer, while the poor are getting a smaller slice of the national pie than they did forty-two years ago.

On the other hand, if we look at who pays taxes in this country, we find that the average American pays about 28% of his or her income to the federal state, and local governments in the form of taxes—federal and state income taxes, of course, but also payroll taxes (Social Security and Medicare), property taxes, sales taxes, corporate taxes,[1] etc. People in the bottom 70% pay a little less than 28%, although not much less—between about 25% and 27%. People in the top 30% generally pay a little more than 28%—except for one group.

The top 400 wealthiest people in America pay an average of only 23% of their income in taxes.

The reasons for this are many. I’ll talk about some of them in my next blog post.

Source: The Triumph of Injustice: How the Rich Dodge Taxes and How to Make Them Pay, by Emmanuel Saez and Gabriel Zucman (W.W. Norton & Company, New York 2019

[1] Corporate taxes, such as the corporate income tax, are calculated as a tax paid by the shareholders of the corporation.