The Rise of Income Inequality in the United States Part 2

Previously, I discussed the theory that wealth inequality is growing in the United States. A lot of this wealth inequality is due to the fact that Americans don’t report all of their information regarding their taxes. The following are some ways to improve wealth and saving data:

  • Employer pensions could be accurately estimated as well as the value of homes Other financial institutions could report balances as well. This would improve wealth distribution estimates.
    • The concentration of taxable capital income has risen enormously for the 0.1%. This percentage used to be 10% in the 1960s and 1970s and has grown to 33% (2012). The rise coincides with the Tax Reform Act of 1986 reflecting changes in tax avoidance rather than in the distribution of true economic value.
    • Some profits of partnerships and s-corps include income labor component reflecting a rise of top entrepreneurial income rather than pure capital income.
    • Dividends and interest earned through mutual funds, s-corporations, partnerships, holding companies, and some trusts end up being included in the interest and dividends section of the ultimate individual owner’s tax return. This helps these companies reduce their tax rates.
  • Savings rates are poorly measured in US data. It is problematic that the top 1% save at larger rates than the middle and lower classes in the United States because this increases wealth disparity. It is not that difficult to collect savings rate information. The ability to compute savings among individuals would be possible by collecting thorough information such as a tax information form.
  • To administer a progressive wealth tax, it is necessary to obtain administrative information on income, wealth and savings from foundations that are currently not required to submit their information. Why don’t we require all foundations to submit tax information?

With a little bit more information, it will be easier to reduce tax avoidance and wealth disparity among the classes in the United States.

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