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Current time:0:00Total duration:4:06

Video transcript

- [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. And visually, it looks like the two percentages, relative to 1947 crossed paths as we get into the late '70s. And 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, seems to be consistently growing at a higher rate than the after-tax income of the bottom 90%. And 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%. And so once again, this includes all forms of taxes. And 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, that 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. And you might say why is that happening? Some theories are, is 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. And 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. And 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.