An excellent collection of articles on Federal tax policies and their effects from the Center on Budget and Policy Priorities is given in the links below.

One of those papers states: " Not since 1928, just before the Great Depression, has the top 1 percent held such a large share of the nation's income. " from Income Concentration at Highest Level Since 1928, By Chye-Ching Huang and Chad Stone (linked below).

Wikipedia has a good article on Distribution of wealth - see the link below for the entire article. The next snip is from this article.

In the United States

In the United States at the end of 2001, 10% of the population owned 71% of the wealth, and the top 1% controlled 38%. On the other hand, the bottom 40% owned less than 1% of the nation's wealth.

In describing tax systems, it is important to distinguish between the percent of taxes paid on a given income, and the percent of taxes paid by a person with a given income. For example, if a person earns $1,000,000 and is taxed at a rate of 10%, they will owe $100,000 in taxes. On the other hand, if a person earns $10,000 and is taxed at a rate of 20%, they will owe $2000 in taxes. The person with the greater income is taxed at a lower rate but pays a higher tax. The person with the lesser income is taxed at a higher rate but pays a lower tax. The United States has a tax system which is a mixture of progressive taxation and regressive taxation. The income tax is progressive, capital gains tax, at a lower rate than the income tax, is regressive, as is the sales tax, since the less wealthy spend a greater percentage of their income. In 2003, the one percent with the highest salaries paid more than 34% of the nation's federal income tax; the ten percent with the highest salaries paid more than 66% of the total income tax; the top 25% of paid 84% of the income taxes; and the upper half accounted for virtually the entire U.S. income tax revenue (nearly 97%). This is an inevitable consequence of the concentration of wealth. People who do not have much money cannot pay high taxes, even when they pay a greater percentage of their earnings in taxes.

The above clip gives ecomomic reasoning that explains why the Constitution of the United States originally forabade direct taxes (income taxes).

This country's growth and success are the result of giving everyday people the right to "life, liberty, and the pursuit of happiness". That growth would have been even greater, and probably built on a more solid base if the Native and enslaved population had been given those same rights. This country will continue to deteriorate economically and socially if those rights are not restored.

You have this fairly continuous downward trend from 1929, until just about the mid-1970s. Since then, things have really turned around, and the level of wealth inequality today is almost double what it was in the mid-1970s.

Above quoted from linked article below: "The Wealth Divide".

The increase in incomes of the top 1 percent of Americans from 2003 to 2005 exceeded the total income of the poorest 20 percent of Americans, data in a new report by the Congressional Budget Office shows.

The poorest fifth of households had total income of $383.4 billion in 2005, while just the increase in income for the top 1 percent came to $524.8 billion, a figure 37 percent higher.

The total income of the top 1.1 million households was $1.8 trillion, or 18.1 percent of the total income of all Americans, up from 14.3 percent of all income in 2003. The total 2005 income of the three million individual Americans at the top was roughly equal to that of the bottom 166 million Americans, analysis of the report showed.

See the NY Times article linked below for the rest of the above article.

"The last quarter of the twentieth century witnessed some disturbing changes in the standard of living and in equality in the United States. ... Between 1973 and 1993 the real wage declined by 14 per cent, though it has since risen by 7 percent from 1993 to 2000, for a net change of -8 per cent. .... Despite falling real wages, living standards were maintained for a while by the growing labor force participation of wives....

excerpt-

Another troubling change... Inequality in the distribution of family income .. virtually unchanged since the end of World War II until the late 1960s, has increased sharply since then.... The poverty rate, which had fallen by half from a postwar peak in 1959 (the first year the poverty rate was computed) to 1973, has since risen.

excerpt-

The first series is the top marginal tax rate (the marginal tax rate faced by the richest tax filers). Back in 1944, the top marginal tax rate was 94 per cent! After the end of World War II, the top rate was reduced to 86.5 per cent (in 1946) but during the Korean War it was soon back to 92 per cent (in 1953). Even im 1960, it was still at 91 per cent. This generally declined over time, as tax legislation was implemented by Congress. It was first lowered to 70 per cent in 1966, then raised to 77 per cent in 1975, then to 50 per cent in 1983 (Ronald Regan's first major tax act). and then again to 28 per cent in 1986 (through the famous Tax Reform Act of 1986). Since then, it has trended upward, to 31 per cent in 1991 (under President George Bush) and then to 39.6 per cent in 1993 (under President Bill Clinton).

Above from Recent Trends in Living Standard in the United States, in Edward N. Wolff see below

Obama has proposed a raise in the top marginal tax rate. Some are screaming about it but it correlates to healthier economic times.

(see Manikaw economics blog linked below)

Taxation can be utilized by the governement to facilitate the redistribution of wealth. See the Wikipedia article and the related question:

How has the Income Tax contributed to the economic crisis of 2008?

Short Answer: Bad Mortgage Lending Practices not mandated by the goverment If you ask me put your money into a money market mutual fund.

Sources.

http://mutualfunds.about.com/

http://www.amfi.com/types/money-market-mutual-funds

Deregulation of the mortgage lending and investment banking industries.

Um - or is it over regulation because the "liberals" bought their votes by helping people afford homes?

No, really, wait .... it's because the SEC isn't enforcing the regulations we have.

No! No! No! It's because the politicians have trashed the Constitution and we are being held hostage by "THEM", the ones that own the FEDERAL RESERVE.

First answer by PaulaGem. Last edit by PaulaGem. Contributor trust: 103 [recommend contributor]. Question popularity: 13 [recommend question]