Thursday, October 27, 2011

The CBO Report on Inequality Should have Gone Back Further than 1979

There is a lot being written about the CBO report, even though there is nothing really new in it.  I do consider it a pity though that they didn't take the analysis back further, you can't really get a grip on what has changed without that information.

The big missing piece is that growth previous to 1979 occurred at a faster rate and was more even distributed across income categories, post WWII income growth was somewhat faster for the 99% than it was for the 1%.  Also, the share the 1% paid in taxes relative to their share of income was larger before the 80s, the 99% has seen their share of income decline faster than their share of taxes.  This would be far clearer if the CBO report had gone back further.  Data sets like those of Saez do this, however, to my knowledge, all of these are behind paywalls which leads to the annoying obstacle of not being able to reproduce them to share.

The exact same arguments above could be made about international data, other countries have seen similar growth rates without the concentration of income.  Where the American middle class has seen their share of the pie shrink faster than their share of the tax burden, in most other developed nations the share of both the pie and the tax burden have remained mostly constant.  It's hard to identify a structural reason for this, leaving policy or perhaps elite culture.  Likely a mix of the two.

The comparative data is also necessary to refute spurious claims, such as the changing age ratio being the cause, as this has not happened to similar countries undergoing demographic transition.  Still, what data is presented is excellent, even if the necessary historical and comparative evidence to grapple with the policy implications are lacking.

1 comment:

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