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Timothy Noah: Why the Rich Are Getting Richer and the Middle Class Is Disappearing

In his new book "The Great Divergence," Noah digs into the causes of America's rapidly increasing inequality. In this interview, he talks to AlterNet about what he found.

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SJ: Since we’re talking about the 99 percent and the 1 percent, I want to talk about tax policy. One of the points that I think you made that was really worth noting is that the top 1 percent and the top 0.1 percent, their income increased much, much faster than just their tax cuts.

TN: I would say tax policy has certainly not helped, but it has not been nearly as big a contributor as most people think. This is a phenomenon that exists before you even take taxes into consideration. What is true is that to the extent that the government has been redistributing wealth through taxes and benefits, it does so less today than it did in 1979. Oddly though, you can only say that in talking about the totality of all federal taxes and all federal benefit programs. If you look just at income taxes – I don’t have this in the book, the data on this came out after the book came out – but if you just look at income taxes the income tax is actually slightly more progressive today than it was in 1979, which is very counterintuitive. Because, of course, there have been a lot of very regressive changes on the top marginal rates, but those have been more than balanced out by the removal of people from the tax rolls at the bottom, which was as a result of a conservative policy that favored rewarding the “deserving poor”. The earned income tax credit was embraced by Ronald Reagan and it became conservative orthodoxy. It was subsequently adopted by liberals too and became the most meaningful anti-poverty program under Bill Clinton. And of course, the great irony now, like Obamacare, it is yet another policy that conservatives invented and are now turning against because liberals like it. Also because they’re desperate to find a way to pay for even more tax cuts for the rich.

You see this in the most recent Republican tax plan, that was voted on in the Senate last week, where they would eliminate the expansion of the earned income tax credit and the child tax credits – both the provisions that helped low-income people – but they would extend the Bush tax cuts for everybody, including those in the top brackets, and in addition, extend a preposterously low estate tax.

SJ: I think most people still don’t understand how marginal tax rates even work. I saw MSNBC tweet about the vote last week saying, “The Senate voted to extend the Bush tax cuts on all but the top earners.” And it’s like, no, the top earners got a tax cut too, it’s just that it's only on their first $250,000.

TN: Yes, the irony is even in the Obama plan the top earners get the biggest tax cut in terms of effective taxes. People don’t understand. There was a story a couple of weeks ago about Geithner having gone up to Capital Hill to talk about all this stuff to Democratic members of Congress, and he actually had to explain to them that marginal tax rates did not apply to all income, they only applied to income above a certain threshold. This is something that you would expect every member of Congress to be very familiar with.

SJ: And a lot of the media lets them get away with it, which is the frustrating part. Congress doesn’t know it, the reporters don’t know it so all this misinformation is getting out to everybody, so that no one knows it.

But also before we leave the tax subject, you do make suggestions in your solutions for creating new top tax brackets for, I think you called them the “the stinking rich.”

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