A reader writes:
If you read the fine print under the graph (which you can only find on the original post you linked to, but not on your own post,) you see that the incomes represented are post-tax. In 1979, the highest marginal tax rates were 70%, double the current 35% rate. Looking at pre-tax income, you'd see a much flatter curve. More importantly though, at 70% marginal tax rates, there's a huge incentive for high-income earners to utilize tax-avoidance strategies, or just plain defer their cash income to a later date. Talk to any tax planner who's been around for a while, and I'm sure they'll tell you that there were a lot more tax loopholes back in 1979 than there are now. In fact, one of the main goals of Reagan's Tax Reform Act of 1986 was to close many of these loopholes.
Look, I think that income inequality is a big issue that needs to be addressed, but that chart is comparing apples to oranges. The chart doesn't prove that income inequality is increasing; rather, it proves that higher taxes mean lower post-tax income.
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