Q: Doesn't cutting taxes help promote economic growth, and a rising tide lifts all boats?

  Source: “Distributional National Accounts: Methods and Estimates for the United States,” by Thomas Piketty, Emmanuel Saez, and Gabriel Zucman.

Source: “Distributional National Accounts: Methods and Estimates for the United States,” by Thomas Piketty, Emmanuel Saez, and Gabriel Zucman.

Q: Doesn't cutting taxes help promote economic growth, and a rising tide lifts all boats?

A: NO, in the U.S., our policies leave many behind. A new economic study combines, for the first time, IRS data, Census Bureau data, and GDP data, including data on government transfers, public spending, and employee fringe benefits, to make comprehensive estimates of how U.S. economic growth is distributed among Americans. The authors find that from 1980 to 2014, people in the bottom half of the income distribution received ALMOST NO BENEFIT AT ALL from U.S. economic growth, as shown in the chart above. Key findings:

  • This distributional pattern since Reagan is in stark contrast to the period from 1946 to 1980, when the bottom half of Americans captured slightly more economic growth than the population as a whole.
  • Since 1980, government redistribution has offset only a small fraction of the increase in inequality.
  • The reduction in the gender gap has mitigated the increase in inequality among adults since the late 1960s, but the United States is still characterized by a spectacular glass ceiling.

Why have working class Americans been shut out of economic growth? Tax policy, which is about to make things even worse, along with widespread deregulation, weakened unions, and an erosion of the real minimum wage.

  • The progressiveness of the U.S. tax system has declined significantly over the last decades.
  • While tax rates have tended to fall for top earners since the 1960s, they have risen for the bottom 50%, mostly through payroll taxes (for Social Security and Medicare).

- originally published in the 12/10/2017 newsletter

Stephanie Lee