This idea, that the wealthiest Americans have been helped along financially by their ability to shortchange the tax system, is a popular view at a time when the divide between the richest and everyone else continues to grow. According to a Gallup poll, 63 percent of Americans say the distribution of money and wealth is unfair, and just over half favor higher taxes on the rich. [...]
Compare, for example, taxation in the United States and Denmark in the periods 1975 to 1979 and 2004 to 2008, as Thomas Piketty, Emmanuel Saez, and Stefanie Stantcheva did in a 2011 paper. In the United States of the 1970s, the top bracket was taxed at a rate of 70 percent, compared to 39.6 percent today. During the latter half of the 1970s, the top 1 percent of earners accounted for around 8 percent of Americans’ total income. Denmark taxed its top earnings similarly, at around 65 percent, and the top 1 percent of earners accounted for about 4 percent of total income. Fast-forward to the 2004 to 2008 period, when the tax rate of top earners in the U.S fell to 35 percent. The share of income accrued by the top 1 percent reached 18 percent. Denmark, which went through a similar period of economic activity and development, according to researchers, kept the tax rate of its highest earners at a comparatively high rate of nearly 60 percent. The result was that the top 1 percent of earners in Denmark still took in around 4 percent of total income by the year 2008. [...]
Things haven’t always been the way they are now. Wealth concentration was high in the beginning of the 20th century, but then dropped from 1929 to around 1978, according to a recent paper by Emmanuel Saez and Gabriel Zucman of Berkeley. It’s risen steadily since then. [...]
The gap between the wealthiest and everyone else has grown so large that economic experts around the world have listed the issue of one of the main concerns facing the global economy. To reverse the extreme concentration of wealth that has characterized the last few decades, Saez says, changes to the top tax rates would have to be relatively large—bigger than the changes in the Clinton era, which saw the top tax rate grow from 31 percent to 39.6 percent, or those in the Obama era, which saw the top tax rate grow from 35 percent to 39.6 percent. And increases in the top tax rate would have to be accompanied by concrete changes in the tax system so that it’s not as easy for the rich to avoid paying taxes. Saez’s colleague Zucman estimates that 8 percent of the world’s financial wealth is held offshore, costing the US alone $36 billion a year.
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