Wednesday, March 26, 2014

A Team Effort

The chart below shows the top 10% share of wealth in the United states since 1917 as well as the corporate tax rate on the 1st $25,000 of taxable corporate income. Keep in mind, this is the taxable income, which is the amount of income that is taxed after all legal deductions have been made.

Considering the tax code is rife with deductions of all manner (many completely understandable and justified), including deductions for depreciation of machinery and equipment, interest on loans (when applicable), etc.

Note that the rate came down considerably from around 1950 to about 1986, where is has leveled off at about 15%, while the share of wealth enjoyed by the top 10% has increased. The chart shows the how changes to the tax structure lead to increased wealth concentration.

Above is a chart showing the top 10% share of incomes in the United States versus the world-wide average since 1908, taken from the Paris School of Economics online database, and is not, as of the date of this posting, exhaustive. Data is being added, and this post will be updated accordingly. To see an enlarged view, click here.

As you can see, and as has been the headline of countless articles and stories on all media, wealth is being concentrated at the top brackets. The chart shows that the trend world-wide (the average for those countries included in the analysis) is toward continued wealth concentration.

One thing that is clear is that this concentration of economic power is not reserved to one political party above another. Both Republican and Democratic administrations have had a hand in this trend, both in the earlier (1921-1933) and the current era.

Another thing that is abundantly clear is that the U.S. trend is steeper than that of the average for all countries in the analysis.

The more recent trending starts around 1971 and continues today, some 41 years later, while the earlier phase lasted only about 20 years and ended right around the time the U.S. began ramping up its wartime arming efforts, when the country needed funding and altered tax rates accordingly.

For a larger view of the chart above, click here.

This chart shows the US trend relative to plus or minus one standard deviation.

The light blue bubble on the right shows the region on the graph from around 1986 to the present.

As you can see, historically, while at times hovering at or near plus 1 standard deviation from the average, the US trend never exceeded that limit for any significant length of time. Starting in 1986, the situation changes.

At that time, we see a pronounced departure from historical trends for the top 10% wealthiest and their share of all wealth.

The next chart graphs the average of the countries analyzed and adds 1 standard deviation (which varies from year to year) to that average. This is the blue line.

The line above it, (red) graphs the share of wealth (as a percentage) of the top 10% wealthiest in the U.S.

As shown on the chart, the equation, based on the historic trend, which describes the forecasted percentage, is listed above the graph. This trend analysis indicates that by the year 2018, a full 50% of the country's wealth will be held by the top 10%.

Also, the trend for the U.S. is growing at a faster rate than the trend for the rest of the world. The real question then, is "how long can this trend continue?"

To see a larger view, go here:
This chart adds the Gross Domestic Product and at the right-most portion, we see that the GDP matches the top 10% share of wealth nearly perfectly. Of course, correlation is not necessarily causation, and in this case the concentration of wealth in the US cannot be the cause of the GDP rise. That is, unless this concentration of wealth is accompanied by a concommitant rise in investment. But, is that the case? Is that what has been happening?