Thursday, April 5, 2012

Top 1% Reduced Taxes in Last 3 Years but Probably Gained Income Share

Citizens for Tax Justice came out with a nice report today showing that the overall U.S. tax system is just barely "progressive," which is to say that as your income goes up, so does your tax rate. While the federal income tax is progressive in this sense, many state and local taxes, such as sales and property taxes are regressive in that lower income people pay higher percentages of their income than do higher income people. The following table from CTJ makes this crystal clear:

As the right-hand portion of the table shows, as income rises federal taxes (individual and corporate income, estate tax, etc.) increase as a percentage of income, from 5.0% of income for the lowest 20% of earners to 21.1% for the top 1% of taxpayers. Meanwhile, state and local taxes move in exactly the opposite direction, from 12.3% of income for the lowest 20% to 7.9% for the top 1%. As CTJ further points out, for every income group the share of total taxes they pay is extremely close to their share of total income (in fact, the biggest difference is 1.7 percentage points).

We already knew, thanks to Emmanuel Saez, that in 2010, the top 1% got 93% of all income gains. With the new 2011 data, we find that the top 1% has continued to make out like gangbusters. As I reported in August, using data from the conservative Tax Foundation, in 2008 the top 1% earned 20.00% of all income. As we see in the table above, just three years later that has grown to 21.0%. Considering that the 2011 data is estimated, perhaps this change is not too significant. But what is really striking is that the top 1% paid only 21.1% of its income in all federal taxes in 2011, whereas in 2008 it paid at a rate of 23.27% for personal income tax alone. Since the top 1% gets an even more disproportionate share of corporate income and taxable estate income than it does of personal income, this is solid evidence that it's a real reduction we are seeing. I hate to sound like a broken record, but it's really true that there is one tax system for the 1% and another one for the rest of us.

Monday, April 2, 2012

America Shows No Increase in College Graduation Rates over the last 30 Years

Jared Bernstein (via Paul Krugman) highlights an amazing breakdown in the prospects for reducing economic inequality any time soon. Over the last 30 years, the U.S. has made no progress whatsoever in increasing college graduation rates. To be specific, 25-34 year olds in 2009 had a college degree rate of about 40%, almost exactly the same as for 55-64 year old baby boomers. In the meantime, other industrialized countries were racking up substantial gains, most spectacularly in the case of South Korea where a little over 10% of 55-64 year olds have college degrees, but more than 60% in the 25-34 age group do. If you want to understand how South Korea has gone from a poor developing country to an industrial powerhouse within our lifetimes, this is one big reason.

Here are the overall results for OECD and select non-OECD countries for the two periods:

As we can see, the U.S. has fallen from a tie for second with Canada among current OECD members (Russia is not a member) to 15th in the OECD. The big question is why this is happening. One major reason is rising college costs, which have far outstripped overall inflation.

Tuition and Fees

Private Nonprofit Four-YearPublic Four-YearPublic Two-Year
1980-81 to 1990-915.1%4.2%3.9%
1990-91 to 2000-012.6%3.3%3.2%
2000-01 to 2010-113.0%5.6%2.7%

Note: Average annual rate of growth of published prices in inflation-adjusted dollars over a 10-year period. For example, from 2000-01 to 2010-11, average published tuition and fees at private four-year colleges rose by an average of 3.0% per year beyond increases in the Consumer Price Index. See link above for further data on tuition and fees plus room and board.
View Notes and Sources

As we can see, the rate of cost increase for public four-year universities was the most rapid of all. One big reason for that, of course, is reduced state support of higher education. Citing State Higher Education Executive Officers, the National Conference of State Legislatures reports that state appropriations per student, at $6928 in fiscal year 2009, was more than $1000 below its FY 2001 peak, and lower in real terms "than in most years since FY 1980" (p. 1). As Bernstein argues, Pell grants are one way to offset this problem, and he points out that the Obama administration has strengthened the program. However, the Ryan budget would slash Pell grants, among many other programs, in order to fund a tax cut for millionaires of almost $400,000, per Bernstein.

As Alan Krueger noted in January, there is a strong relationship between higher inequality and lower social mobility. The OECD data show that the U.S. is making no progress on one of the most important tools for social mobility, college. If access to higher education in this country actually declines, as it is threatening to do, our inequality problem will become infinitely harder to solve.