Changes in tax policies that benefit the wealthy and large corporations have been a key driver of America’s skyrocketing inequality. While a relative few at the top have gained enormous economic and political clout, the squeeze on public revenue has undercut much-needed public investments and services that benefit ordinary Americans. Reversing that trajectory will require an overhaul of our tax code to ensure everyone pays their fair share.

Individual Taxes

Tax rate hikes at the top were an effective tool in reversing the extreme inequality of the “Gilded Age.” Under high top rates in the post-WWII decades, the share of national income flowing to the richest 0.1 percent fell significantly. When policymakers once again slashed those rates, beginning in the 1960s and accelerating in the 1980s, inequality shot back up. According to Professor Emmanuel Saez, the richest 0.1 percent of Americans pocketed 10.84 percent of total U.S. income in 2018, a level not seen since 1929. Contrary to the arguments of tax hike opponents, real U.S. GDP grew faster in the 1950s and 1960s than in more recent decades. The subsequent decade with the highest growth rate was the 1990s — after Congress enacted moderate top tax rate increases.

In the United States, wealth inequality is even more severe than income inequality, and the reduction in the top income tax rate has been a key factor. According to Institute for Policy Studies analysis of data collected by Saez and fellow economist Gabriel Zucman, the share of U.S. taxes paid by the top .01 percent was just slightly higher in 2018 than in 1962, despite the more than tripling of their share of the nation’s wealth. By contrast, the bottom 50 percent saw their share of U.S. wealth drop by more than half during this period. The top marginal tax rate in 1962 was 91 percent, compared to 37 percent in 2018.

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