Comments on: Chart of the day, income-inequality edition A slice of lime in the soda Sun, 26 Oct 2014 19:05:02 +0000 hourly 1 By: TFF Fri, 10 Jun 2011 01:21:21 +0000 Perhaps this would explain it? ons/url.cfm?ID=1000588
“For example, from 1982 to 1986, 60 percent of long-term capital gains were excluded from tax.”

If you switch from reporting 40% to reporting 100%, then the reported income would jump dramatically. No?

Of course there were a few other changes to the tax law in 1986. I’ve really never dealt with the federal income tax in its prior incarnations. You have. So tell me, what else changed? Any restrictions on tax shelters put into place?

By: TFF Fri, 10 Jun 2011 01:16:01 +0000 Dollared? The graph shows that the wealth share of the top 0.5% jumped from just over a 6% share to a 10% share. That jump represents 4% of the gross income in the US, not 15%. So what the heck are you talking about? There is a **HUGE** difference between the 4% that I cited and the 15% that you accuse me of claiming.

Moreover, the graph shows *no* appreciable jump in the income for individuals between the top 0.5% and 1.0%. So whatever happened that year, its effect was highly concentrated.

So you tell me what happened? A jump from 6% to 10% is a pretty substantial jump!!! Did the wealthy suddenly get more than 50% wealthier *IN A SINGLE YEAR*? Or did they simply choose to recognize that income all at once?

I shouldn’t need to explain tax law to a professional like you, but capital gains don’t count as income UNTIL YOU SELL THE SECURITY. The determination of when to sell the security is influenced by tax law.

Perhaps instead of blathering nonsense, you could educate me about exactly how the tax law changed between 1986 and 1988? (I was in college, had sold my investments, and wasn’t even filing tax returns at that time.) Are you sure there were NO changes that might have encouraged the ultra-wealthy (top 0.5%) to suddenly recognize income that they had previously sheltered?

I’m not a deliberate liar, and I don’t get Republican Party chain e-mails. You are talking like a fool. Can you please start making sense? If you have useful information, then share it?

Something dramatic changed between 1986 and 1988. What do *you* think it was?

By: Dollared Thu, 09 Jun 2011 05:32:39 +0000 Random and TFF, you can start posting a link that demonstrates your assertion that somehow 15% of all gross income in the US magically appeared in 1986. By a stunning coincidence, I was at a firm that gave wealthy people tax advice in that year, and I can tell you that your assertion is ridiculous.

So, for your proof, start by posting the historical tax compliance rates 1980-2000. You will find a decline, not an increase, in compliance over that period.

In other words, you guys are either deliberate liars or are willingly buying into something you got in a Republican Party chain email.

By: ErnieD Wed, 08 Jun 2011 11:24:34 +0000 Barry Ritholz’s site shows this graph going back to 1914.

The striking thing about the graph is that most of the countries (except for Australia) had similar high income percentages for the top 1% before WW II. After WW II, everybody dropped to low levels for several decades.

Now the US has moved back up to pre-WW II levels but the rest of the world is largely unchanged from their post-WW II pattern.

In the financial literature, I continually see data mining of post-WW II patterns and benchmarks for investing, often just limited to the past 30 years (the standard for MPT).

However, it appears that the income distributions in the US have moved back to pre-WW II patterns, so possibly it will make more sense to look at the entire data base of investing information and benchmarks which go back into the late 1800s to understand what the realm of real-world possibilities really is. The income distribution is just one more reason, on top of other obvious ones, such as the declining percentage of the US in total world GDP to indicate that the first few decades after WW II may not be the best comparison.

I am often concerned about the cherry-picking of data to prove points without a very solid rationale for excluding the other data. Recency bias is a well-known issue in decision-making in numerous fields.

By: jomiku Tue, 07 Jun 2011 18:32:00 +0000 Thanks for the link.

I doubt hidden income makes that much of a difference compared across countries and that info in just this one graph is interesting.

By: FifthDecade Tue, 07 Jun 2011 17:11:38 +0000 What your article doesn’t mention (although I shall play around with the link later) is the effect at the bottom of the spectrum – the US has something like 19% of the population living below the poverty line, Germany has next to none. Does this mean that the US system favours the ultra-rich at the expense of the man in the street?

By: TFF Tue, 07 Jun 2011 17:10:43 +0000 I see random_trader beat me to it…

Income inequality did NOT jump dramatically in 1986. The uber-wealthy simply stopped hiding their income from the IRS. My guess is that tax law changes alone contribute 4% to the orange line (and thus to the green line as well).

That doesn’t mean that income inequality isn’t high. Just that it hasn’t changed as dramatically as some would pretend.

By: random_trader Tue, 07 Jun 2011 16:17:30 +0000 At least you only talk about the increase after 1994. It’s sad when people post charts like this and present the jump in the late 80’s as an actual increase in inequality instead of a tax law change that switched how rich people reported their earnings.

By: ErnieD Tue, 07 Jun 2011 15:29:57 +0000 We missed a huge opportunity in 2008-2009 to let this even out and go back to typical levels.

I am a big fan of capitalism. In real capitalsim, many of the top 1% income earners would likely have lost their jobs or gone bankrupt if we had allowed the financial sector to follow the natural course of events. This was the solution from 1929-1933 when many high rollers from the 1920s saw their similar disproportianate wealth and income collapse.

I am not a big fan of increasing taxes as I think the government generally is inefficient. However, if our society has made the decision to replace capitalism with insurance against failure of wealthy individuals, then I think we should be increasing capital gains and dividends taxes as well as forcing the financial sector to forego carried interest claims on money that is clearly fees – they can just view this as premiums for the government insurance policy they have for maintaining their future income.

If they want to maintain today’s very low tax rates, then they need to publicly declare the end of TBTF and Federal Reserve ZIRP which has transferred money from the rest of society into the pockets of the the top 1%.

Unfortunately, our top 1% of wealth and income people have rigged the system so that they can have their cake and eat it too.