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How the lowering of corporate taxes affects wealth inequality

The enormous cut in the corporate income tax rate coincided with a 500 percent increase in the average income of those in the top one hundredth of one percent, NYT’s David Leonhardt writes.

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Writing the “Morning Note” for Thursday’s New York Times, columnist Dave Leonhardt highlights a staggering and (to me at least) somewhat surprising explanation for the enormous and growing income and wealth inequality in the United States. And it’s not cuts in the top rate of the individual income tax (although I’m sure those cuts are also a factor).

It’s the changes in the code that have shrunk corporate tax collections from almost 7 percent of the U.S. Gross Domestic Product to less than 1 percent.

You read that right. According to the Times, based on data from the Federal Reserve, at their peak in the early 1950s, corporate tax collections amounted to a little less than 7 percent of GDP. In 2020 that had dropped to less than 1 percent.

The drop in taxes on corporations, as a share of GDP, is staggering. For the moment, let’s ignore how that staggering cut came about, and just think about the impact.

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Rather obviously, the wealth of upper income Americans as a group gets more benefit from a decline in effective corporate tax collection than the wealth of the rest of us. You could just assume that, but it so happens, according to the same graphic, that the average income of the entire bottom 90 percent of the income distribution picture has grown slower than the GDP, while the average income of the top one hundredth of one percent has grown almost 500 percent.

I’ll just say that again: The enormous cut in the corporate income tax rate coincided with a 500 percent increase in the average income of those in the top one hundredth of one percent. I wonder if there is much of a connection between those two trends.

No, I don’t really wonder. But if you do, click through and read the full Leonhardt piece, which explains it further. And for those who don’t much care for the obvious political, social and economic implications of the above, try calling me, and Leonhardt, and the New York Times socialists. It seems to help.