The income/wealth gap in America has been growing over the span of decades - you can seriously take your pick of resources to illustrate the point, but the bottom line is that the rich have been getting richer while everyone else has either been staying at the same level or getting a little poorer. In relative terms, though, since we're referring to a gap, then that gap has just been growing. The separation between the wealthy and everyone else grows, and it doesn't seem like that many people are concerned. Or if they are concerned, they haven't been able to come up with a solution. Fortunately for those looking for answers, I've got time on my hands and love to explain. So read on, and prepare to have your mind blown.
In my last post, I explained how income taxes are calculated. My reasoning is that you shouldn't have an opinion on something without understanding it. So if you haven't yet, give it a read (note: it's NOT so simple as taking x% of your income - so if you think that, then you are wrong, and it is REALLY worth it to read the post).
Before we dig in, I'd like you to answer a couple questions:
- As a percent, how much do you think someone who makes 50,000 should get taxed?
- As a percent, how much do you think someone who makes 500,000 should get taxed?
- If we throw it back 40 years to 1978, do you think people were paying more or less in taxes?
Your answers CAN'T be wrong - they're just opinions! I'm so serious about you answering these questions, I'm cutting up this entry.
Whether you write it down on a slip of paper, or jot down some answers in your "Notes" app, ANSWER THE QUESTIONS. It requires you to come up with 2 percents and the word "more" or "less."
So if you're a fan of lower taxes and think that the government has just been JACKING UP tax rates lately, your answer might look something like "1. 10%, 2. 20%, 3. more" would suffice.
Or if you think people should pay their fair share and that government has been better at holding people accountable than they used to, your answers might look like "1. 20%, 2. 50%, 3. less"
YOU ARE CHEATING YOURSELF IF YOU DON'T ANSWER THESE QUESTIONS BEFORE CONTINUING.
Alright, you made it. Here's the work I did this morning - these calculations seriously took maybe 15-20 minutes of tedious number crunching, so consider yourself benefiting from my free labor. Here is a table that demonstrates how much a person would pay in federal income taxes across the span of 4 decades. In parentheses, I include the highest tax percent for that person (as in, all the numbers in parentheses are percents).
| 2018 | 2008 | 1998 | 1988 | 1978 | |
|---|---|---|---|---|---|
| A makes 50k | 6,900 (22%) | 8,900 (25) | 10,700 (28) | 11,700 (28) | 18,900 (60) |
| B makes 100k | 18,300 (24%) | 22,000 (28) | 25,900 (31) | 25,700 (28) | 51,600 (69) |
| C makes 150k | 30,300 (24%) | 36,000 (28) | 42,500 (36) | 39,700 (28) | 86,600 (70) |
| D makes 200k | 45,700 (32%) | 51,800 (35) | 60,500 (39.6) | 53,700 (28) | 121,500 (70) |
| E makes 500k | 150,700 (35%) | 153,600 (35) | 176,400 (39.6) | 137,700 (28) | 331,500 (70) |
- What general trends do you notice?
- What's the deal with '88?
- How do these numbers make you feel?
- Do you see any problems with the current situation? If so, what are the problems?
Some personal observations:
- From '78 to '18, the tax rates fell across the board - so we all got a break, which is pretty sweet, right?
- From '78 to '18, someone who makes 500k saw their rate fall by 35% (or cut in HALF), while someone at the 50k mark saw their rate fall by a WHOPPING 38% (cut by almost 2/3!!)
- So while the 50k earner saved about 12k, the 500k earner saved... 180k. For millionaires, the savings are even more astronomical.
So now would be a really good time to ask a few key questions:
- What do you think should be done about income inequity?
- Between the four earners (50k, 100k, 200k, 500k) I presented, which ones do you think pay their fair share to society?
- Is it worth it for you to save 12k in order for someone else to save 180k?
- How do you expect these gaps in funding to resolve themselves?
- What government services would you like to see get cut (e.g. welfare, defense spending, healthcare, etc. etc.) since the government can't pay for what it used to?
Related reading:
Article on how tax cuts mostly apply to the 1%
Inflation calculator if you care to turn all the numbers in the table to 2018 numbers. I didn't want to give you more numbers to confuse you, though.
Tax tables used to calculate all these numbers. It's actually really worth it to check out this page - in 1963, the highest tax rate was 91%!!!! MAGA baby!!
Historical corporate income tax rate. Spoiler: it used to be way higher
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