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POLICY INSIGHT
BEYOND THE NUMBERS

Enough Is Enough on Tax Cuts for Wealthy

UPDATE, SEPTEMBER 30: We’ve revised some of the figures in this post. Click here for the updated numbers.

In yesterday’s New York Times, Richard Thaler, one of the nation’s top economists, neatly refuted the arguments for borrowing tens of billions of dollars each year to keep President Bush’s tax cuts flowing to the most affluent 2 percent of people in the country.  He then posed a central question:  “whether we want a society in which the rich take an ever-increasing share of the pie, or prefer to return to conditions that allow all classes to anticipate an increasing standard of living.”

As I’ve noted before, over the last three decades a stunning shift in income has taken place in this country, from the middle class to those few at the very top of the income scale.  Back in 1979, the middle 20 percent of Americans had more than twice as large a share of the nation’s total after-tax income as the top 1 percent.  But by 2007, the top 1 percent’s slice of the economic pie had more than doubled and in fact exceeded the middle class’s slice, which had shrunk.

This great income shift means the average middle-income American family had about $9,000 less after-tax income in 2007, and an average household in the top 1 percent had $741,000 more, than they would have had if the 1979 income distribution had remained.  Here’s how this looks in graph and table form:

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Fully two-thirds of the income gains in the last economic expansion (2001-2007) flowed to just the top 1 percent.  This is not a healthy sign for a society.  As Professor Thaler urges, we need to decide whether we want to promote still-greater inequality (by extending the high-income tax cuts) or lean against this trend.  Each year the average millionaire gets about $125,000 from the Bush tax cuts, according to the Urban-Brookings Tax Policy Center.  Now seems to be a good time to say enough is enough.

Chuck Marr
Vice President for Federal Tax Policy