The Takeoff in Income Inequality: Emmanuel Saez

Summary

This video explores the critical issue of income inequality in the United States, tracing its historical trajectory from the Gilded Age to the present. It highlights the significant income concentration among the top 10% and particularly the top 1%, especially post-Reagan era, as tax policies shifted. While the wealthiest recovered robustly from the Great Recession, the bottom 99% saw stagnation in real income growth. The analysis suggests that higher taxation of top incomes can lead to broader economic benefits for society, challenging the notion that such policies hinder economic growth.

Takeaways

• 😀 Income inequality is crucial in society as it affects people's perceptions of fairness and their economic situations relative to others.
• 📊 The U.S. income distribution exhibits a significant U-shaped pattern over the last century, with high concentration before World War II.
• 🏭 The late 19th century, known as the 'Gilded Age,' saw the rise of 'robber barons' and extreme wealth concentration among the top 10% income earners.
• 📉 The Great Depression and World War II led to a substantial reduction in top fortunes, aided by progressive taxation and financial regulations.
• 📈 Following the New Deal, the top 10% income share fell to about 33% and remained low for two decades, creating a period of low inequality.
• 💰 The top marginal income tax rate in the U.S. was over 70% from 1933 until the election of Ronald Reagan, after which deregulation began.
• 📈 Since the late 1970s, income concentration among the top 10% has risen significantly, largely due to the top 1% of earners.
• 📉 The bottom 99% of Americans experienced essentially zero real economic growth from 2009 to 2012, despite recovery for the top 1%.
• 🌍 Countries with higher top tax rates, such as France and Japan, have not experienced the same level of income concentration as the U.S. and the U.K.
• 💡 Historical evidence suggests that taxing higher incomes does not hinder economic growth and may benefit the broader population through funding essential programs.

Q & A

What is the significance of income inequality in society?

Income inequality is important as it reflects fairness and influences people's perceptions of their own economic situations relative to others, impacting public concern about economic disparity.

What historical period is referred to as the 'Gilded Age' in the United States?

The 'Gilded Age' refers to the late 19th century when great fortunes were made during industrialization, characterized by high income concentration among the top 10%.

How did the Great Depression and World War II affect income concentration in the U.S.?

The Great Depression and World War II significantly reduced top fortunes, and subsequent New Deal policies imposed financial regulations and progressive taxation, which kept income concentration low for decades.

What change occurred in U.S. tax policy with the election of Ronald Reagan?

With Ronald Reagan's election, New Deal policies were reversed, leading to deregulation and a drastic reduction of the top income tax rate from over 70% to 28%.

What has been the trend in the income share of the top 10% since the late 1970s?

Since the late 1970s, the income share of the top 10% has been rising, with the top 1% experiencing the most significant increase, from less than 10% in the '70s to over 20% in recent years.

How did the economic recovery differ between the top 1% and the bottom 99% after the Great Recession?

After the Great Recession, the top 1% experienced approximately 30% real income growth, while the bottom 99% saw essentially zero growth in real economic income per family.

Why can't the increase in income concentration be solely attributed to technology and globalization?

The increase in income concentration cannot be solely attributed to technology and globalization because similar technological changes occurred in other countries that did not experience the same rise in income inequality.

What correlation exists between top tax rates and income concentration in different countries?

Countries that have cut their top tax rates significantly, like the U.S. and U.K., have experienced increased income concentration, while those like France and Japan, which maintained higher tax rates, have not.

What implications does high taxation of top incomes have on economic growth?

Historical records suggest that taxing top incomes more does not hinder economic growth and may actually benefit the bottom 99% by funding public programs, leading to potential trickle-down effects.

What are some benefits funded by taxation in rich countries?

Rich countries utilize taxation to fund essential programs such as health benefits, retirement benefits, and education, which contribute to overall economic stability and support for lower income groups.