yego.me
💡 Stop wasting time. Read Youtube instead of watch. Download Chrome Extension

US taxation trends in post war era | Macroeconomics | Khan Academy


3m read
·Nov 10, 2024

  • [Instructor] In a previous video, we looked at this diagram over here, which shows the growth in per capita GDP since 1947, and it compares to that the growth in after-tax income of the bottom 90%.

And what we said in that video is it looks like something interesting happens around this region, where from 1947, at least till about the late '60s, it looks like the after-tax income of the bottom 90% was tracking per capita GDP or even growing a little bit faster than per capita GDP.

And then, as we go into the '70s and '80s, it looks like the slope of the bottom 90% seems to have gone down a little bit. Visually, it looks like the two percentages, relative to 1947, crossed paths as we get into the late '70s.

One of the questions we asked ourselves is, why do we see this trend? Down here, they're both growing at around that rate, and then over here, you have your per capita GDP, which seems to be consistently growing at a higher rate than the after-tax income of the bottom 90%.

One of the levers we theorized is maybe it has something to do with tax policy. And so that's what we're gonna focus on in this video. We can look at this data, that was from a New York Times article; it shows us how the total tax rate—federal, state, and local combined—has changed over time.

So the way that you could think about this is, in 1950, those from the zero to the tenth percentile, so these are the bottom tenth in income, had an effective total tax rate of, it looks like around 16 or 17%.

While in 1950, those in the 99th percentile seem to have an effective tax rate approaching 30%. Those in the 99.99th percentile had a tax rate of a little bit more than 50%, and then those in the top 400 had an effective tax rate of 70%.

Once again, this includes all forms of taxes. What's interesting about this graphic is we can see how this changes over time. So you can see, as we go to 1960, we do see some changes.

The total effective tax rate for some of the higher income groups has gone down by a bit, but it's relatively high and it's higher than the other groups. Now, as we fast forward to 1970, we actually don't see a lot of change relative to 1960.

As you get to 1980, that trend, however, is continuing; the effective total tax rate for some of the higher income groups is continuing to go down, but they're still paying a higher percentage of their overall income relative to other groups.

But what we see, as we move from 1980 forward, some of that changes. You even see this phenomenon, as early as 1983, that the top 400 are actually paying a lower effective tax rate than people in the 99.99th percentile.

You might say why is that happening? Some theories are that people in this highest group are more sophisticated at being able to find tax shelters, that a disproportionate amount of their income might be coming from corporate profits or capital gains, and those start to be taxed differently.

Or, you have changes in things like the estate tax, which might disproportionately affect some of these very highest groups. But we can fast forward and see how things have trended till today.

What you see is a general flattening of the curve, and as you get to 2018, this very highest group is not only paying a lower effective tax rate than folks in the 99th or the 99.99th percentile, but they're paying a lower effective tax rate than almost everyone.

Once again, the reason for that is that a disproportionate amount of their income probably comes from capital gains or corporate profits, and the taxes have decreased on those, or they have been more sophisticated at finding tax shelters.

More Articles

View All
Nearly 100 Captive Orcas and Belugas at Risk of Drowning, Freezing to Death | National Geographic
This video from November 2018 shows a holding facility near the small Russian town of Nicosia, where government officials are investigating the capturing and exporting of wild beluga whales and orcas. This is footage of the same facility taken in January …
Are You Alone? (In The Universe)
Are you alone in the universe? Or are you connected to anything? First of all, you’re part of a group of mammals that’s still very young, but we can make YouTube videos already, and build Large Hadron Colliders! We’ve also split the atom and invented Poké…
Thousands Of Miles Dead Reckoning | StarTalk
We’re featuring my interview with traditional Polynesian ocean Voyager 9 OA Thompson, and I had to ask him how the ancient Polynesians navigated 2400 miles from Hawaii to Tahiti without being able to calculate longitude. Let’s check it out. Okay, imagine…
Miyamoto Musashi | A Life of Ultimate Focus
Miyamoto Musashi is one of the most legendary samurai and famed as Japan’s greatest swordsman—undefeated in more than sixty duels. After he escaped death during the Battle of Sekigahara, Musashi became a ronin. Aside from being a swordsman, he was also a …
Using units to solve problems: Toy factory | Working with units | Algebra I | Khan Academy
We’re told a factory makes toys that are sold for ten dollars a piece. The factory has 40 workers, and they each produce 25 toys a day. The factory is open five days a week. What is the total value of toys the factory produces in a day? Pause this video …
THE ULTIMATE STOIC GUIDE ON HOW TO BE HAPPIER IN LIFE | STOICISM INSIGHTS
Welcome back to Stoicism Insights, your guide to unlocking the wisdom of the ancients for a modern world. I’m thrilled to have you join us once again as we embark on a journey of self-discovery and introspection. Today we’re diving deep into the heart of…