WASHINGTON - A new report published today by The Hamilton Project shows that the tax code has contributed to sharply rising income inequality in recent decades as middle- and lower-income Americans have seen their incomes stagnate while the very wealthiest Americans have experienced staggering income growth. The report also notes that deficit-financed tax cuts do not spur economic growth. Other key findings are laid out below. A full copy of the report can be found here.
Ways and Means Committee Ranking Member Sander Levin (D-MI) made the following statement regarding the report:
“This report reinforces the wake-up call we have been issuing about the Republican tax proposals that - in the name of tax reform - would lead to additional tax cuts for the very wealthiest households. Their proposals come at a time of rapidly rising income inequality that has seen dramatic income growth among the highest earners and stagnant wages among the rest of American families. Republicans would make matters worse with tax proposals that would require scaling back provisions that - as reflected in the report - are vital to middle- and lower-income families, even as they maintain those provisions that benefit the very wealthy, adding to the nation’s deficit."
Among the report’s findings:
THE TAX CODE HAS EXACERBATED INCREASING INCOME INEQUALITY
“Earnings have risen dramatically at the top since 1979 - by more than 250 percent for households in the top 1 percent of the income distribution. At the same time, many households at the middle and bottom have experienced stagnating incomes or even declines in earnings. Widening income inequality for workers has had significant consequences for American families, including greater disparities in the economic situations of children - creating an uneven playing field for future generations.
“The very people who have received the biggest income gains in the past three decades have also seen the largest tax cuts. A progressive tax code that takes ability to pay into account - in which the tax rate increases as taxable income increases - is the most significant and powerful tool available to counteract income inequality."
THE TAX SYSTEM HAS BECOME LESS PROGRESSIVE OVER TIME
“As inequality has increased and the divide between the haves and the have-nots has widened, changes in tax policy have exacerbated the market trends, promoting greater inequality among American families. Indeed, tax rates for the wealthiest Americans have declined over the past several decades, while tax rates for average Americans have remained roughly constant."
VIRTUALLY ALL AMERICAN FAMILIES, EVEN LOW-INCOME FAMILIES, PAY TAXES
“While a larger number of families do not pay federal income taxes, it is not true that these households do not pay any form of taxes, as many suggest. In fact, most Americans pay more in payroll taxes than in income taxes. … Those who pay no federal taxes - on payroll or income - are disproportionately young (such as students who will pay taxes after they join the workforce) or old (such as retirees who paid taxes over their lifetimes), or temporarily out of work."
DEFICIT-FINANCED TAX CUTS DO NOT SPUR ECONOMIC GROWTH IN THE LONG RUN
“The best available estimates suggest that the tax cuts enacted a decade ago likely reduced economic growth in subsequent years. For instance, the CBO estimated the macroeconomic effects of the 2001 and 2003 tax cuts, which reduced revenues by more than $200 billion per year. Although these cuts included many provisions to promote saving, investment and increased incomes, they also included sizable tax breaks for economic activity that would have happened regardless of changes in tax rates. CBO estimates suggest that the increase in government borrowing to finance the cuts exceeded the benefits of lower tax rates."
