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Proposals that would increase the income tax for those at the top of the heap always raise the question, why should the rich have to pay higher taxes?  Is it envy, or socialistic 'redistribution of wealth',  or 'class warfare'?  

One good reason the rich should pay more is that over the past 3 decades the Top 5% has done awfully well, while the other 95% of our country has been either just holding their own or losing ground.  

Between 1980 and 2007, according to one measure* the share of national income going to the Top 5 % increased by 78% and the share going to the Top 1% went up by over 169%.  

That's one good reason the rich should pay a higher income tax. (Another reason has to do with the fact that the effective income tax rates for this same group have gone down significantly since 1980, while the effective rates for the other 95% have not.  But that's for another discussion.)  

Intro

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THE POLITICAL ECONOMY

Before we starting looking at the Share of the Pie, let's address that idea that the concepts of "wealth redistribution" and "class warfare" arise only when we are considering taking anything away from the already wealthy and powerful or that doing so is either somehow in conflict with rules of nature or opposite to the wishes of some divine force.

Every nation's economy is in reality a political economy, shaped by both the political and business decisions of its government, its businesses and it's consumers (citizens).  Every economy, even one that claims it is founded on a free market and adopts capitalism as it's cornerstone, has always been and will always be dependent on, integrated with and shaped by the political values and policies of the country within which it operates.  (As a basic example, the free market fundamentalists rarely advocate getting government off the backs of business by repealing the laws under which limited liability entities like corporations exist.)  This concept is embedded in the term "free market democracy" which you see ever more frequently in the writings of those who promote their particular design of that concept as an exportable commodity of the United States in its foreign affairs adventures.  When the concept suits their needs, they acknowledge it.   To try to isolate "political" from "economy" is like trying to isolate the brain from heart.  

Here's the thing:  it's "wealth redistribution" whether the policy is made and enforced before or after the money is made.  

It's also "redistribution" whether it results in more wealth going up the income pyramid to a small group or down to a larger one.  

For any economy based on human commerce and existing within human society there is no Garden of Eden established by a Higher Power  from which we deviate by our sinful government 'interference'.  There is no perfect natural state of efficiency governed by the immutable laws of nature.  To say "economy" is to say "political economy".  Anything else is fantasy or self-serving propaganda.   Concepts such as the Golden Mean and Golden Rule probably have more relevance to both political and economic reality than any references to the supposedly utopian existence that could be attained by some mythical "unfettered" market.

What we have is a system, within which we have designed parameters (through action or inaction) to suit our needs and meet our goals.   So, consistent with good business practices, let's look at how the particular set of design parameters put in place over the last 30 years have been working here in the USA since the Reagan Counter-Revolution took hold.   Let's look at 'share of the pie'* to see if we can spot a trend that might tell us whether those parameters need to be revised.

HOW BIG IS YOUR PIECE OF THE PIE?

If you compare 1980 with 2007, what you find is that the share of our total Adjusted Gross Income (AGI) reported on federal income tax returns is a pretty good picture of how our political economy distributed the economic rewards of our combined work as a society.

To put the following numbers in a perspective each of us can relate to, you might want to figure out what group you're in and then follow it's progress between 1980 and 2007.  

According to the Tax Foundation report on income taxes and AGI for 2007*,  the cutoff income to be in the Top 5% was $160,000 and for the Top 1% it was $410,096.  If your family's AGI was $113,018 in that year, you were in the Top 10%.  AGI on your federal return of $66,532 put you in the top 25% and $32,879 was the cutoff between top half and bottom half.

In 1980 the bottom 50% had 17.68% of the total reported national AGI pie.  
In 2007, their share had dropped to 12.76%.

That's nearly a 28% drop between 1980 and 2007 for the entire bottom half of those submitting tax returns with positive AGI. (While most government assistance is not taken into account in these figures, it should be considered what such a drop in share does to push people  into situations where they need such help.  But for now, we're focusing on the other side of the tracks.)

In 1980, the top 50% had 82.32% of the pie.  
In 2007, that share had increased to 87.74%.

Not a huge increase.  But who was it within the Top 50% that got that increase?  If it was fairly widely distributed amongst that top half, it's hard to say the political economy was not serving a goodly portion of the society.  

So lets take that Top 50% and give it a closer look.  First lets look at the bottom half of the top half.  

In 1980, those between 25%-50% had 25.62% of the pie.  
In 2007 their share had decreased to 19.04%.  Hmmmm.

So they didn't really hold their own.  So how about the top 25%?   It must have been the Top Half of the Top Half that were so fortunate.  They must have done really well.

In 1980, those in the Top 25% had 56.70% of the pie.  
In 2007 their share had increased to 68.71%.   Not bad, until we look a bit closer.

The bottom 3/5ths of that group (those between 11-25%) started with 24.57% of the pie.  
But in 2007, their share had dropped to 20.66%.  

Not good.  Not good at all.  So where's all that pie going?   The Top 10% is all that's left, but even there, we have some surprises.

The AGI share of the Top 10% started (1980) at 32.13% and by 2007 their share had grown to 48.05%.  Now we're getting somewhere, but wait, the bottom half of that Top 10% actually lost ground (11.2% in 1980 to 10.61% in 2007.)    

So here's the punch line.  Guess who has accumulated a much bigger share of our national income over the last 30 years.  

In 1980, the Top 5% of tax returns accounted for 21.01% of the total pie.  
In 2007, that Top 5% accounted for 37.44% of the total pie (that's a 78% increase in their share.)

And within that small portion of our society, the Top 1%, whose AGI starts at $410,096 in 2007 but goes up into the hundreds of millions of dollars per year,  their share of the pie went from 8.46% in 1980 to a whopping 22.83% in 2007 (that's an increase of 169%).  

PIE DOESN'T FALL FROM THE SKY.

Pie doesn't fall from the sky or come up ready-to-eat out of the earth.  Neither does our political economy.  Both must be made by us, by our choices and by the ingredients we choose based on the results we intend.  We can taste the results of the last 30 years of Reaganomics in the global financial collapse, in the ongoing despoilation of our coastal waters and in the longer-term redistributions of wealth discussed above.

The Reagan Revolution was at it's foundation designed as a revolt of the rich, by the rich and for the rich (no matter how it was accomplished.)  It was an acknowledged counter-revolution to Great Society and New Deal and a closeted counter-revolution to the original deal initiated in 1776:

Not only a government of the people, by the people and for the people, but a political economy of the people, by the people and for the people.
Nothing more.

Nothing less.

The political economy of the United States should be changed in the long term by pointing it in a direction that works better for all of us in a way that will last.  These revised design parameters will need to share both the benefits and burdens of our society in a way that matches our people's morals, values and principles and in a way that supports the system of government for which our initial revolution was fought.  

In the meantime, from those to whom much has been given, much more should be asked.  

So endth the lesson.

*All numbers taken from the Tax Foundation's  Summary of Latest Federal Individual Income Tax Data, dated July 30, 2009 by Gerald Prante  (Fiscal Fact No. 183).   All qualifiers and conditions from that article would apply here.  In particular I would note their disclaimer that: "Tax Reform Act of 1986 changed the definition of AGI, so data above and below this line not strictly comparable".  However, in looking at the data on either side of that break, no shifts of data appear to result that would substantially change the results reported above.

http://www.taxfoundation.org/...

Extended (Optional)

Originally posted to Into The Woods on Thu May 13, 2010 at 05:05 PM PDT.

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What happened to the share of the Pie in your slice since 1980?

8%10 votes
20%25 votes
43%53 votes
13%16 votes
11%14 votes
3%4 votes

| 122 votes | Vote | Results

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