Despite what liberals claim, an academic study reveals economic inequality is very small.
The 2016 study by the National Center for Policy Analysis (NCPA) reveals the current tax code is highly progressive. It’s entitled, “U.S. Inequality, Fiscal Progressivity, and Work Disincentives: An Intragenerational Accounting.”
Concluding that wealthy taxpayers pay a greater share in terms of their lifetime tax burden, the report was authored by economists – Laurence Kotlikoff of Boston University, Alan Auerbach of the University of California-Berkley and Daryl Koehler of Economic Security Planning, Inc.
Why do the researchers say economic inequality a fallacy?
The authors write low-income households are getting a lot more in government benefits – food stamps, Temporary Assistance for Needy Families and Medicaid) than they pay in taxes.
Meantime, high-income household receive fewer benefits and pay a lot more in taxes.
“This study is, arguably, the first conceptually appropriate and empirically accurate analysis of U.S. inequality and its mitigation via government policies,” writes Profess Kotlikoff.
The researchers criticize conventional income-based calculations of inequality and tax rates as well as mixing together the young, who have yet to pay most of their taxes, with the old, who have already paid most of their taxes.
This is standard practice in Washington by all government agencies as well as leading think tanks, like the Tax Policy Center. This new study shows that conventional analysis is systematically misrepresenting the degree of U.S. inequality, fiscal progressivity, and work disincentives.
NCPA is a 501(c)(3) nonprofit, nonpartisan public policy research organization headquartered in Dallas with offices in Washington, D.C. It analyzes tax and entitlement systems and reform proposals using computer models developed by the economists.
“This does not mean the remaining inequality is either small or benign or that it should not be further reduced,” he adds. “That’s a matter for the public and Congress to decide. But it’s important to get the facts right.”
“One other major fact that this study presents is that in taking from some and giving to others, our fiscal system with its close to 40 major uncoordinated fiscal programs, is leaving far too many people, be they rich or poor, with far too little incentive, at the margin, to work,” the professor writes.
— For the top 1 percent or earners ages 40 to 49, their remaining lifetime net tax rate (taxes paid minus government benefits received as a share of remaining lifetime resources) is 45 percent.
— For the bottom 20 percent in the same age group, their remaining lifetime net tax rate is -34 percent, meaning they will receive more in transfer benefits than they pay in taxes. Remaining lifetime resources is the sum of a household’s net wealth plus its human wealth (the present value of all its projected future labor earnings).
— Those aged 70 to 79 in the top 1 percent of wealth have a remaining lifetime net tax rate of 26.8 percent. In contrast, those in the lowest 20 percent have a negative average remaining net tax rate of -695 percent!
However, the study concludes the complicated system of separately designed taxes and benefits leads to median marginal net tax rates that are significantly high for different wealth levels. The net marginal tax rate is the rate paid on the last dollar of income earned minus government benefits.
— Among the poorest 20 percent of the 30 to 39 year olds, the average remaining lifetime net tax rate is –16.8 percent, whereas their median lifetime marginal net tax rate is 45 percent.
— There is also enormous variation in net marginal tax rates across households with the same or similar wealth. For 50 to 59-year-olds in the third 20 percent of earners, the median remaining lifetime net tax rate is 44.2 percent.
— But the minimum marginal rate is –5.3 percent, and the maximum rate is 262.3 percent.
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“The only difference between a tax man and a taxidermist is that the taxidermist leaves the skin.”