Inequality–does it matter? should taxes address it?
Bruce Bartlett’s December 15, 2009 piece, Inequality: A Problem?, states Bartlett’s agreement with Dalton Conley that
“the left should stop worrying so much about inequality per se–its costs are overstated, as well as the benefits of greater equality. Instead …
liberals should concentrate more on helping the poor and less on beating up
Now, before we even get into the inequality stuff, you’ll notice that the statement above is loaded with presuppositions. It pre-supposes that liberals are extraordinarily focused on “beating up the rich” and that they are not currently very interested in “helping the poor.” Further, it presupposes that whatever “beating up on the rich” involves, it cannot “help the poor.”
Are liberals focused on “beating up on the rich”? I expect Bartlett would point to bloggers (such as myself) as examples. I have rather persistently argued for higher taxation of the rich and super-rich through more progressive rates and elimination of the capital gains preference which results in low effective tax rates on those whose income is predominantly income from financial assets. The income tax changes over the last four decades have eroded progressivity–instead of the 70% or 90% rate that we had at times in the past on very high incomes, the super-rich with multimillions of adjusted gross income pay the same marginal rate as the merely rich who have more than about $350,000 annually. The rich and super-rich derive the most benefit from the biggest loopholes in the tax code, like the mortgage interest deduction, the charitable contribution deduction, and the property tax deduction. They are the ones who buy muni bonds and get to exclude the interest from income, so that the rate of return on munis is set with the rich as the targeted customer (high enough sp that the exclusion makes the return on munis (with no tax) better than the return on corporate bonds (after tax)). Is that line of argumentation “beating up on the rich”? No, quite assuredly it is not. The wealthy don’t merit punishment for being wealthy. But taxation is not punishment. Taxation is merely the exaction of appropriate tribute based on societal members’ ability to pay, to ensure that the state can continue to function appropriately in service to all its citizens. Making the case that the status quo is overly solicitous of the rich and super-rich is not “beating up” on the rich.
Are progressives not “helping the poor” and in fact beating up on the rich rather than focusing on the poor? No and No. There are lots of ways to help the poor, including volunteering, giving to charities, and others. Many progressives are engaged in all of those ways of helping the poor. We mentor in schools, give to food kitchens as well as to environmental organizations, donate canned foods at Christmas, and work in our communities for better schools, better transportion, better jobs, better shelters, less discrimination. But none of those are enough in a society that has become stressfully bipolar between the well-to-do and the rest (not to mention, the making it okay and the truly down-and-out). Progressives, that is, cannot easily help the poor and ignore the way that wealth has eroded the democratic society in which we all exist, because that erosion is eating away at the possibilities for the poor to pull themselves out of poverty.
Bartlett goes on to say:
I think he is right. I have never understood how I am worse off if
the top 1% of households increase their share of national wealth or income as long as the absolute level of wealth and income of the other 99% is
unchanged. It may be aesthetically displeasing, but it doesn’t impose any
actual costs on anyone as long as the pie is not fixed.”
(Beale here again) The growing income disparity is not merely aesthetically displeasing (which it is) or environmentally harmful (which it is, as the wealthy consume many times their share of the world’s resources in rambling from one multi-million mcmansion to another) or humiliating for many (which it is, especially for those growing numbers in the “servant” class who work at the whim of the wealthy and live in unsatisfactory conditions while watching the wealthy waste in a night what could feed their children for a year). It does impose costs, even if the pie is not fixed. Those costs include the long-term impact to broad-based growth when wealth becomes more and more concentrated in the hands of a very few. And one is worse off when the top 1% of the households increase their share of national wealth to the detriment of everyone else. A society with such wealth imbalances is a society that also has enormous power imbalances. Wealth creates power, and that power is almost invariably used to further the aims of those holding it. Democratic institutions are particularly vulnerable, since wealth and power permit the capture of agencies and legislatures, so that the institution is thwarted from serving the broader constitutency in order to do the bidding of the wealthy oligarchs who hold the reins to power. It is this sense in which the populist anger expressed by the teapartiers is most distressing–it is misdirected, seeing evil per se in government and good per se in “private enterprise” and unable to understand the important role of government in standing as protector between the private corporatocracy and citizens.
[N]either does it follow that there is no limit to how much we can soak the
rich without average people suffering some of the consequences. We really
don’t want the rich spending all their time figuring out how to hide their
wealth from the tax man or engaging in conspicuous consumption; we’d rather that they invested their wealth in businesses that will increase their wealth but also create jobs and income for the rest of us, too.
Hmmm. First, we are nowhere near “soaking the rich” in this country. IN fact, we have been making sure, with almost every change to tax policy undertaken in the last four decades, that the rich sat high and dry and comfortable. Moving them down a notch or two to the benches on the same level with the rest of us won’t begin to soak them–it will, in fact, hardly be felt. Second, while we definitely don’t want the rich spending all their time hiding their wealth, telling them that they can just keep it all without paying a fair share of taxes is not the alternative. Decent enforcement rules will go a long way to solving the problem of hiding wealth–broker reporting, which most think is going to happen this year, will help, but restoring funding to the government’s collection efforts and requiring more audits of the wealthy than of the Earned Income Tax Credit would be the best ideas. (I’m not even so sure that I don’t want the wealthy engaging in conspicuous consumption. AT least that way there would be less to pass down to heirs and less possibility of sustainable oligarchy.) Taxing the wealthy moves the dollars to the government, which moves the dollars out into businesses that provide services the government buys, and then those businesses invest the dollars. I like that better than depending on the wealthy to invest and create jobs for the rest of us. I fear they are just as likely to invest as they so often have in the past–in emerging economies where they suck out the natural resources and leave those populations without jobs or much to show for their foreign input, without doing a thing to create jobs here either.
Farther on, Bartlett suggests taxes cannot assist a move to less inequality because their only effect is “by discouraging the rich from earning income.” There the Chicago School thinking comes out–the idea that taxes distort decisions, and if you tax the income of the rich, they just will do without the income. No one has yet satisfactorily explained why the rich don’t still like 50% or 65% of $X better than 0% of new $X. The substitution of leisure for income is a possibility, of course, but that would actually not be bad at all, if it succeeded in capping the amount of wealth for one family and created a gap into which someone else could step to earn money.
Finally, Bartlett suggests that we should do what Europe has done, suggesting that Europe has accepted the compromise of VATs as a conservative tax along with extensive social welfare spending from that tax. This is misleading, since Europe generally has a VAT as a supplement to the income tax (and, in the case of France at least, a bunch of other taxes as well). And it is disingenuous, since tax policies that Bartlett has supported (zero taxation of capital gains) or, apparently, VAT instead of an income tax, would not raise enough in revenues to fund the huge military obligations of Iraq and Afghanistan as well as an improved welfare state. Methinks Bartlett’s version of acceptable social welfare spending would be significantly lower than most progressives’.
There is a lot in Bartlett’s statement that is worrisome, but perhaps the most for me is the disregard for the impact of inordinate inequality on democracy. Most of us don’t think about democracy very often, and we seldom talk about it among diverse groups in ways that can enhance its institutions and its sustainability. A discussion of inequality that so completely disregards the impact of the kinds of gross inequalities that we are seeing more of in this country–where a CEO may earn in half a day what an average worker in his company earns in an entire year, where every single member of the national body that is most influential on our laws (the Senate) is in the highest bracket of the income tax and “rich” in any reasonable measure of the benefits and burdens of society that they bear– is itself cause for concern for our future.
Another writer this month had similar thoughts. Christopher Hayes ends his article on “The Great Leap”, a story of China and its growth and expansion as a world financial power, with the following paragraph comparing the trends in the U.S. and China.
We tend to view China as posing an alternative and threatening model for
the future, one that’s by turns seductive and repulsive, the source of envy and contempt. But after a while I wondered if we aren’t in some way converging with out supposed rival. China has managed the transition from a
repressive, authoritarian, impoverished country to an industrial, corporatist oligarchy by allowing a loud and raucous debate while also holding tightly onto power. Perhaps we are moving toward the same end from a democratic direction, the roiling public debate and political polarization obscuring the fact that power and money continue to collect and pool among an elite that increasingly views itself as besieged on all sides by a restive and ungrateful populace. Hayes, the Nation, Jan. 11/18, 2010, at 17.
Speaking only for myself, I can remember a time when income distribution in the US was much more equal, and taxes were much higher. Things actually worked quite well. It was not paradise. There was perhaps more poverty then because the country was much less wealthy overall. And blacks were treated abysmally. But I must say that given how much wealthier the US is today than it was then, there is no excuse for the existance of any poverty in the US today.
Judgiing from his writings Bruce Bartlett is a mindless, self centered, jerk. Being a mindless, self centered jerk is a normal human state. Such people will always be with us. Why we choose not to treat them with the contempt they deserve eludes me.
The characterization of China from The Nation seems not remotely accurate. China is still a repressive, authoritarian , impoverished country. There is no particular tradition of “racous debate” in China. Participants in a Teabagging rally in China would quickly find themselves either dead or wishing they were dead. You are unlikely to find a Chinese Ralph Nader, Bernie Sanders, Barry Goldwater or Ron Paul anywhere outside a jail. That is not to say that the Chinese have not made truly astonishing economic progress, or that they are not far more open to the world than they were three decades ago, or that their leaders are not sincerely trying to improve the lot of the averege Chinese citizen. In fact, with the exception of their treatment of non-Chinese minorities in Tibet and Western China, the Chinese seen to be making remarkable progress toward having a pretty reasonable country by the second half of this century. But small-d democrats they are not, and are not likely to be for many decades.
“No one has yet satisfactorily explained why the rich don’t still like 50% or 65% of $X better than 0% of new $X. The substitution of leisure for income is a possibility, of course, but that would actually not be bad at all, if it succeeded in capping the amount of wealth for one family and created a gap into which someone else could step to earn money.”
Why do you assume that high earners cant leave the country? or that a firm paying such an earner will not high over seas? For eg. Most french banks locate their high earners in UK.
Margina income is marginal. There are costs in time and cash associated with earning. At some point you just get sick to death of paying half of what you earn. I quit my job and restructured my lifestlye to live more cheaply on one income. So look who suffers for that. 1. I spend a lot less. (good for me/ bad for retailers). 2. We pay less in taxes. Where governement was earning north of 33% on my income, they now get hi 20ish assuming i was replaced by a sole bread winner or 0% assuming the job was not replaced or 33% assuming another marginal earner replaced me. 3. We fired the Nanny. She earned about 40k a year. She found part time work with another family but her income has dropped and she pays a lot less in taxes. In the end I think my example shows Higher taxes may result in punishing those at the bottom of the ladder and may result in loss of revenues to governement to help them out. If you think raising taxes some more might help youd be wrong. On one income doors are now open to Toronto and London.
…ignore the way that wealth has eroded the democratic society in which we all exist, because that erosion is eating away at the possibilities for the poor to pull themselves out of poverty”
Please provide one piece of evidence that income inequality has eroded Democracy relative to, say, 25, 50, 75 or 100 years ago. I would argue that TV sound bites, political polling / market research, and an increasingly ignorant American population are bigger threats to the process.
“Taxation is merely the exaction of appropriate tribute based on societal members’ ability to pay, to ensure that the state can continue to function appropriately in service to all its citizens”
Talk about vague. Please explain how one defines / determines “appropriate tribute” and “ability to pay”. And what does “appropriately service” mean?
What I hear is “we should raise taxes to pay for govt programs and transfer payments (welfare any way to put it) until we achieve a level of inequality that is “acceptable”, whatever that is.
If I am wrong, please correct me.
“The growing income disparity is not merely aesthetically displeasing (which it is) or environmentally harmful (which it is, as the wealthy consume many times their share of the world’s resources in rambling from one multi-million mcmansion to another) or humiliating for many (which it is, especially for those growing numbers in the “servant” class who work at the whim of the wealthy and live in unsatisfactory conditions while watching the wealthy waste in a night what could feed their children for a year)”
Good lord, there aren’t any predjudices or personal value opinions in here. I have no idea why Bartlet thinks liberals like to beat up on the rich. First, I guess your point is that if the rich had less money and the masses more, then the environment would be better off because…the masses could then lead lives filled with more wasteful consumption? If you are making a purely environmentalist argument then we just need to make the rich more poor, not make the masses more wealthy. Second, why exactly is the “servant class” being “humiliated”? And who counts in this class anyway? Does the person who cuts your hair count? How about the guy who changes the oil in your car? Certainly these people are also “working at the whim” of their employer, ie, customers.
“Farther on, Bartlett suggests taxes cannot assist a move to less inequality because their only effect is “by discouraging the rich from earning income.” There the Chicago School thinking comes out–the idea that taxes distort decisions, and if you tax the income of the rich, they just will do without the income. No one has yet satisfactorily explained why the rich don’t still like 50% or 65% of $X better than 0% of new $X”
Here is a real world example.
Take a married couple working in NYC making combined income of ~$700k. Wife earns $200k. Because of the marriage penalty, 100% of the wife’s income is taxed at the top rate (35% going higher). Add in state tax, city tax, FICA and you are looking at close to a 50% rate, so the $200k salary turns into $100k.
Now assume they have a baby and need to hire a nanny and pay for other childcare which adds up to between $30-$50k.
At this point the wife would be working 60+ hours a week in her professional job, rarely seeing her kids, for what amounts to $50-70k in take home pay. Maybe that is worth it.
Raise the marginal tax rate to 60%, however, and now she is working all year for $30-50k. Raise the marginal tax rate to 70% and she is working for $10-30k.
I gurantee that as you move above 50% more and more of these women stop working to stay at home, and as they do so the economy loses (a) a highly productive employee and […]
The best cure for inequality is a healthy economy producing healthy jobs.
Minor quibble, but the audits of the EITC were triggered by fraud mills and identity theft, not some progrom against the poor.
I read a article a while ago by a Catholic Bishop who complained that he could not preach the “good news” of Jesus convincingly to an audience that had no concept of Original Sin. He was right. There has to be a certain bottom, some basic shared assumptions about the world to really build an argument.
I know how he feels because it is almost hopeless to try and discuss Human Dignity and Freedom with people who are so casually arrogant as to reorder society before lunch and move populations before dinner.
You want to create Equality and Wealth and “better lives for the poor?” You want to grow economies and raise the standard of living in the world while saving the environment?
Good God, it’s like watching a Dung Beetle crow about his elevated state as he climbs to his lowly task. Where did this assumed competence come from? This pathetic overreaching?
All I want is to be left alone to live my life in peace and yet here you are planning your own little war on your fellow man while you stuff a table napkin in your shirt collar and bloviate about “the poor.”
Honestly, if you could see yourself for what you are you would be as nauseated as you make me – your intellectual superior BTW. At least I have heard of the sociology of politics, the concept that sometimes, just sometimes, that very act of making a powerful political class can maybe, just maybe, create in internal dynamic of surreptitious rewards that is entirely unrelated to the ostensible reasons it gives for its power. Sort of like, well, our current State.
I’m sorry you where just changing the course of the oceans . . . please continue.
TV soundbites, polling and the rest of your list are all paid for with money. In particular, they are all paid for with money that somebody thinks is better spent manipulating political outcomes than guzzling champaign. In other words, the assumption is that a dollar in political manipulation money is worth more than a dollar in returms.
Which is to say, your list of insidious political influences is a list of ways in which widening income and wealth gaps erodes democracy. The greater the disparity in means, the greater the disparity in ability to influence political outcomes.
What is really worrying is that, in general, the very people who deny that taxes change anything but incentives for the rich are the very people who spend like crazy trying to bend politics to their own advantage.
Wow. So, you really are upset, huh? Those straw men you created and that vast puddle of hyperbole you spilled – they seem sincere in their intent, if not in their origin. You really are afraid that your cushy life could be interrupted if, instead of government subsidizing your way of life – as it does for huge numbers in the middle and upper classes – it began to help the least among us.
So, there is some research showing that “conservatives” tend to be more fearful than the general public. I recall that at least one such piece of research had to do with foreign and military policy, not domestic policy. Still, it seems that the flp side of the gleeful “get all you can” view of the world is the fearful “don’t let THEM have any”. Sad, really.
Hiding here is the assumption that the persons only motivation for working is money and that aquiring stuff is the main goal of life. If the wife is in a professional job does it provide other compensation to here than money? If so that needs to be added. With todays situation view the wife working as a form of divorce insurance, it may have a high premium but it can really pay off if as in 1/2 of the marriages there is a divorce. So thats another form of pay. In addition one could say that the educated woman doing child care may be a net positive to the community as a better socialized child/adult will arise. (Many would argue that)
“…by discouraging the rich from earning income…”
Let’s allow that James Carlyle Smith, one of the most typical of that tribe known as “the rich”, is dropped with his family on the archetypal desert island. (Sidebar: an alien reading our literature without viewing our planet would conclude that it’s an oceanic world with millions of islands, each one temptingly empty, awaiting the next thought-experiment.) They get jacknives and matches, that’s all.
On another of these islands Duane “Bubba” Jones and his family are dropped with the same gear. Are we expected to believe that the Smith will outbuild Jones by a factor identical to the differential between their paycheques? I will grant that Smith might do a bit better, due to probably beginning with better education and all-around health. But after a few generations I would expect two very similar cultures and settlements — not huts on one island and palaces on the other.
The current Western rich, when they create wealth, create it by building on an elaborate substrate already in existence (not all of it physical.) Bankers are even more so supported by this substrate — the value of their stock-in-trade is completely generated out of thin air.
That “the rich” and the bankers are seen as a source of wealth is the storehouse fallacy. The guards and keepers of the storehouse didn’t fill it, they just control it.
***The best cure for inequality is a healthy economy producing healthy jobs.***
But an economy where all productivity gains are sucked off by an imperial ruling class is a banana republic. It is unlikely to be either healthy or to produce healthy jobs. Taxation is a much more civilized way of discouraging government of, by, and for the wealthy than revolution. The latter works also … sometimes. But it tends to have unpleasant side affects and too often merely replaces one set of despicable whack jobs with a different set.
I agree with Bartlett’s first statement that “liberals should concentrate more on helping the poor and less on beating up the rich.“
The Pew Economic Mobility Project has shown significant statistical correlations between upward income mobility and gov’t spending on health care, education, and social programs. For instance children of low income earners are much less likely to a 4-year college degree than children of high income earners. Today’s employment report found the unemployment rate for college graduates was 5%, compared to the 10% national average. Increasing availability of health care and education for the poor would help reduce inequality.
Of course, the increased spending needs to be funded, and to do this tax rates would have to be raised, particularly for the rich. In the end, improving the progressive tax system will have to be part of any solution, whether it’s explicitly designed to target the rich, or merely generate the fiscal revenue necessary to help the poor.
“All I want is to be left alone to live my life in peace…”
So, you do not understand that you are not alone on this rock or should I say dung heap?
Thanks Linda for what certainly must be considered a provacative posting judging by the diversity and srength of the comments it has provoked. I have little use for the Guest who apparantly has gone Galt. If Guest’s job was not filled then he/she was getting paid for doing nothing of value. If it was then I am delighted that he/she dropped out and somebody who needed employment more could get the job. While the government may suffer a loss of tax dollars, the money being spent to pay for guest’s salary is being used more wisely to help the overall economy which I agree with STR should be the ultimate goal if government wants to provide for the general welfare of its citizens rather than just the privileged elite. As to ex patriots, do not let the door hit you on the way out. If you are just using your country to make money, i really do not want you as a fellow citizen. I would prefer to stick with people who have a love for their country and hope that their children and grandchildren will live in the same great country. it is those kind of people who defend the country, who seek to employ their fellow citizens, who try and make the world just a bit better by having lived. The U.S. needs more of those folks and less of the folks who would go to the ends of the earth to avoid paying for the government that gave them an opportunity to learn how to make money or protected their inheritance for them so the masses did not simply take it from them by force. I too, would like to be left alone to live my life in peace except when I want the government to take away my garbage, plow the snow from my street, put out the fire in my house, arrest the burgular, cut the grass in the nearby park so I can enjoy a walk through it on a summer day, stop the guy from planting a bomb in the building where i work etc. I guess I am also willing to pay taxes so I do not feel the guilt when I have enjoyed a meal or movie out and I see the homeless person sleeping in the cold on sidewalk or when I am elated at my year end bonus and leaving the office on Christmas Eve while the cleaning crew shuffles in to do their minimum wage jobs. None of this is to say that “liberals” do not overeach in needlessly meddling in others affairs. They are almost as bad as conservatives who want to tell me how I must lead my life including whether I have to worship a Christian God, whether my neighbor should have an arsenal, whether my daughter can have an abortion, whether my daughters childhood friend can “marry” her gay lover etc. The issue presented is taxes. I make a decent buck, I pay a lot in taxes, I do not like paying a lot in taxes, but I consider paying them the price of living in a society where I want to live and I do not think I should be borrowing from children and grandchildren in order to avoid them. And while the total tax burden my wife and I pay(property, slaes, state and federal income taxes, payroll taxes and more fees than Carters has pills) amounts to something more than 40% of our gross income, neither I nor my wife are going to stop working or saving if the percentage goes up. Indeed while there is a lot that both of us hate about our jobs we both derive a lot more benefit from doing them than just our take home pay. As to the idea of income inequality, IMHO it is at the root of the economic problems we face and reduces the incomes of the rich more than the poor. Bill Gates would be a richer man today if more people could afford pc’s even if he paid another couple of percent in taxes. The rich and super rich should willingly agree to a more progressive tax system in their own selfish interests. The alternative is a feudal society and the instability that comes with it.
“…I think he is right. I have never understood how I am worse off if
the top 1% of households increase their share of national wealth or income as long as the absolute level of wealth and income of the other 99% is
unchanged. It may be aesthetically displeasing, but it doesn’t impose any
actual costs on anyone as long as the pie is not fixed.”
I believe this is factually incorrect. The median income in the US is lower in 2009 than it was in 1999 in absolute terms. And the % of income going to the lowest fifth of the population has declined steadily as the percentage going to the top fifth has increased during the last decade. See Census Bureau table I linked too on an earlier post.
What the effects of this are is difficult to say. It doesn’t seem “fair” to those for whom greater equality is a good. On the other hand, while this was going on Shrub started his wars vs. Islam with widespread national support, etc. But then Johnson got us deeply into a war in Vietnam at a time when the Gini index was far lower than it is today, in fact when income inequality was as low as it has been since records began. So…draw your own conclusions, if any Income inequality appears unrelated to warmongering. Maybe it relates to something else that is important. I haven’t tried to discover that..
A related question is taxes and the government deficit and debt. I think there is no doubt that the deficit will have to come down and the debt should certainly not be pushed up any more. This will mean more money going to the government via taxes. Inevitable. And when it comes to taxes, I think those who CAN afford to pay should be the ones who do. That means people who have five homes, all worth at least ten million and who get incomes of 15-40 million a year should be the ones to pay the bulk of the increased taxes. The obscene excess they have can very well be siphoned off for the national good. This is not an inequality question per se.
I am fully aware that the super rich alone cannot provide all the tax money needed by any means. But the extra tax money should start with them, and only be put onto those further down the income ladder to the extent necessary. In short I’d put a 75-80% tax rate on incomes over 5 million a year,.etc.
Government spending, including interest on debt, adds to non-government net financial assets and taxation reduces NFA. Non-government financial transactions net to zero and do on influence NFA. When the public’s propensity to save increases, especially if there is a CAD, then nominal AD is insufficient to purchase the real output capacity of the economy and there is an output gap and unemployment unless government makes up the difference by increasing NFA. This is accomplished by increasing the deficit by either upping spending or lowering taxes, or both.
Spending and taxation provide a sharp instrument for influencing the economy. It’s a political choice as to how this instrument is used. Liberals generally prefer increasing spending and conservative would rather reduce taxes because they have different constituencies. However, it is also an economic choice, since there are studies showing that increasing inequality not only damages national prosperity as an composite of general welfare (satisfaction), but also that increasing inequality leads to inefficiencies, as well as social discontent.
There is a group of economists who propose using fiscal policy to balance NAD with output capacity to achieve full employment with price stability. See, for example, L Randall Wray, Understanding Modern Money: The Key to Full Employment and Price Stability (1998), available at Google Books.
As the monopoly provider of a non-convertible floating fx currency of issue, the US government is not financially constrained and does not need to “fund” its money creation by either taxation or borrowing. This is a voluntary constraint imposed politically.
typing dyslexia 😎
My definition of “healthy” includes your concerns.
Some great comments today.
In 1929, the investment-class was 2% of the population. By the 1980s, 25%; by the 2000s, 50%. As this percentage has increased, the dependency of the investment class on domestic consumption has decreased (globalization). This inter-dependency is what dictates how much disposable income the working-class will be allowed. The investment-class has nearly complete control of all of the levers.
Campaign reform will affect the advantages of the investment-class only in a small way. The plight of the poor in this country can only improve if they unite. Which leads to the conclusion, presumably, that the solution requires the mostly white, misinformed, mostly Christian, and not-so-open-minded class to better understand which side they “should” be on. Then of course the Dems would need to shift to accommodate this undeniable block of voters, but shifting is what parties can be relied upon to do; educating the knuckleheads is far more challenging. (I know because I am one of them) ray.
Great essay Linda!
perhaps the most for me is the disregard for the impact of inordinate inequality on democracy
The rich are such a miniscule slice of the electorate (.1% ?) that the “threat of democracy” runs the other way. We will be killing the golden goose, and the money doesn’t reach the poor – it gets devoured in the maw of the Government (think Stimulus, Cash for Clunkers, Bridge to Nowhere etc. etc.).
In fact taking from the rich reduces the opportunity for the poor/middle to get ahead. The best anti poverty program is a JOB, and the way to create more wealth for all is ECONOMIC GROWTH. Taking more money from the rich and sending it to an inefficient government reduces all of our wealth. It might satisfy some of your all spite, but you can’t spend Spite Dollars at the store.
How do you know Linda has spite? I think she makes more than you sammy.
Not referring to Linda. Sorry if thats not clear.
I find the following info helpfull:
“Between 1875 and 1995, the share of family income spent on food, clothing, and shelter declined from 87% to just 30%, despite the fact that we eat more food, own more clothes, and have better and larger homes than we had in 1875. All of this has been made possible by the growth in the productivity of the traditonal commodities. In the last quarter of the 19th century, it took 1700 hours of labor to purchase the annual food supply for a family. Today it requires just 260 hours.” ~ Robert Fogel
In 1929, before the crash, 71% of the population lived below the poverty line. Now that number is 13 to 15%. So the long term trend is showing remarkable progress. And wealth is expanding, not concentrating. The expansion has at times been more rapid for the wealthy than the poor. But during the 1960s wages for the working-class spiked, and this makes any comparrison from then to now seem flatter than the long term trends indicate.
In the U.S. the poor do at least have some opportunities. Globally, if China’s progress is removed from the equation, poverty in the developing nations is rising at an alarming rate. The number of malnourished recently topped the 1 billion mark. And Dr. Stiglitz has calculated that in some extreme cases, the general populations receive as little as 5% of the value of their natural resource base. He also contends that for every dollar that the developed nations spend on aid, they receive 3 dollars in return. In this regard, wealth is concentrating.
As for me, I come from a poor American family. I did in fact get my first union card on my 18th birtday (as in the B. Springsteen song). I began as a hot-roofer in 1973, and then I worked as a carpenter, and so I experienced one of the most extreme wage plunges in human history. I thereafter had a log furniture business that was crippled by NAFTA, and then destroyed by The Great Recession. But if were up to me, I would still give aid to those poor souls in the third world, before our not-so-poor souls. We and especially the Europeans have been exploiting anyone who was powerless to defend themselves, for much too long now. ~ ray
I am not at all sure that wealth is “expanding”. I would have to look up the statistics. But Income has been rising for the top fifth of the population and declining for the bottom fifth. I would think wealth is following suit. Will see if I can find relevant statistics.
How do you know Linda has spite?
Sammy below (or above) says he’s not talking about Linda. However, I think its odd that you don’t at least have a “David Brooks” at Angry Bear. It seems like every single regular is on a crusade to increase taxes and regulation. And they don’t tell the truth about it; they don’t say yeah you’ll have less, the economy won’t grow as fast but that’s just the cost for having what we think is a more just society.
Because I was so brief my point was not clear.
The influence of money and power on politics has been around forever. Therefore the current level of income inequality – which is only unusual if the beginning of time for you is 1950 – is not, in my estimation, a “threat to our democracy”.
My point is that the new technologies of politics – TV advertising, near real-time market research, message testing, and madison avenue style political campaigns – is new, and is a threat.
You are mistaken on a few accounts.
1. There is nothing “hiding here”. Other motivations for wanting to earn money (apart from “aquiring stuff”) could be to pay for your child’s education (a $20-50k plus a year expense in NYC, not including saving for college) and saving for retirement.
2. You must not be married, Lyle, or you that you would never have had the idea that “my wife should keep her job and never see her kids, even though she hardly makes any money at work, because, you know, this is her divorce insurance”. Your idea makes sense in theory, but not so much in reality. If you are married, I suggest you try an experiment and point out to your wife how great it is that she has a job, because this way if you ever get divorced she has something to fall back on. Please post back here and let us all know how that goes. If she thinks it is a great idea you might want to monitor her email accounts…
3. Personal satisfaction with work is always a consideration, but again it is a trade off. Personal satisfaction must be weighed against long weeks, low net pay, and no time with the kids.
4. There is nothing wrong with educated women doing child care, but what is your point? The issue is whether high marginal tax rates affect decison making and the amount of work that people do. The answer is “yes” they do.
“Generate the fiscal revenue to help the poor.”
Please define poor. Please define help. Please describe how much fiscal revenue would be needed.
This is the whole point of this thead. People here have lots of ideas about taxing the rich, but not much to offer about “helping” the “poor”.
Yet another person who misunderstands marginal tax rates. Sigh.
“If Guest’s job was not filled then he/she was getting paid for doing nothing of value. If it was then I am delighted that he/she dropped out and somebody who needed employment more could get the job.”
This is nonsense. I guess if Albert Einstein decided he was tired of working and wanted to retire to a life of leisure it didn’t matter at all because Princeton University could just hire someone else to do the work.
Businesses are machines that work on money. A McDonalds hamburger only has so much value to a customer. If you raise the minimum wage high enough all you do is make it economically impossible to sell them.
“While the government may suffer a loss of tax dollars, the money being spent to pay for guest’s salary is being used more wisely to help the overall economy”
Huh? More likely the economy has to (a) find another person to do Guest’s job or (b) lose a productive worker.
“I agree with STR should be the ultimate goal if government wants to provide for the general welfare of its citizens rather than just the privileged elite.”
Why is the role of the government to “provide” for anybody? I agree there are all kinds of welfare that benefit the affluent (e.g., farm subisidies), but that does not make them right. I would argue the role of govt is to create rules and get out of the way. A key problem with Progressive policies is that “the right policy” is determined by “the right outcome” so there is no way to avoid endless govt involvement. It is like deciding that the “right” rules for a football game are the ones that result in a tie every game. Since this is hard to do, the NFL would be changing the rules every week.
“As to the idea of income inequality, IMHO it is at the root of the economic problems we face and reduces the incomes of the rich more than the poor.”
Actually you have it exactly backwards. The factors that have led up to our current economic problems (economy fueled by ever higher amounts of debt, globalization, American culture that values celebrity and consumption over achievment and production) are also responsible for the income inequality.
Or, ahem, the govt will have to cut spending.
Or we will just keep devaluing the dollar until the whole thing blows up.
Thanks for bringing up the old “fasle consciousness” argument. Always a classic. When oh when will those poor stupid white people realize they should be voting in the economic interest! Your question about whether the Democratic party could hold its nose to accomodate all the unwashed masses is funny however.
One follow up question: many people on this board have admitted to being well off and yet happily paying higher taxes. When will they wise up – clear their eyes of their false Progressive consciouness / liberal guilt – and finally vote in their economic interest, i.e., for tax cutting GOP candidates?
If responding to me, please elaborate.
Agreed and and ecellent point. I think a longer term perspective is very helpful for making sense of our current situation.
(P.S. I hope you don’t think I was being a jerk in my response to your earlier post. I was just having fun poking fun… )
Deadweight cost of inequality?
I put in the question mark because I am not an economist, and I would be happy to be shown to be in error. 🙂
I think that there is a deadweight cost to economies associated with inequality. (This will be a bit long, sorry.)
In general economic activity is a win-win proposition. The buyer values what she buys more than the money she pays for it, and the seller values the money she receives more than what she sells for it.
Suppose a toy market economy with one good that is valued differently by people. Suppose (unrealistically) that the marginal value of that good does not decrease with how many a person has. Also suppose (unrealistically) that everybody has enough money to buy as much of the good as they want to. What will happen? In the end, will not the person who values the good the most own all of it, and the final price of the good will lie between her value and the next highest value? (There are no producers of the good in the toy economy.) Any trades before this final point is reached will have added value to the economy. (Let’s not worry about the value of money when nothing is being traded. 😉 )
Now let’s change our third assumption, and suppose that money is restricted, so that, in the end, there are people who would pay more for the good, but cannot afford to do so. Then there are possible trades that are not being made which would add value to the economy as a whole. This lost value is a deadweight cost.
*** End of part 1 ***
Now let us introduce extreme inequality into the economy, by giving one person all the money. To keep it simple, let’s suppose that she can buy all of the good that is offered at or below her value, with plenty of money left over. In the typical case there will be a lot of people who would buy the good at a higher price, but cannot afford to do so.
Now let us keep the amount of money in the economy the same, but give each person the same amount of money. If this amount of money is greater than the final price under the extreme inequality case, so that some of the good can be traded at a higher price, then the additional trades will add value to the economy as a whole. In that case there is a deadweight cost to the inequality. OTOH, if this amount is less than that price, so that less of the good is traded, then the lost trades are a deadweight cost of the equality.
Thus, both inequality and equality (of money) can have deadweight costs associated with them. Equality also requires an insufficient supply of money to have a deadweight cost. In both cases, however, redistribution can add value to the economy as a whole, by enabling people to buy the good.
This toy economy is a demand driven economy. In the real economy producers can supply goods and compete to keep prices affordable. However, in the real economy there are still things that cannot be increased in response to demand, such as non-renewable resources, including land. So the distribution of money can have deadweight costs associated with it.
Rich countries, I expect, have enough money that much greater equality would benefit them. The global economy may not have enough money. However, global inequality is so extreme that it would benefit from less inequality.
And what happened after all that income inequality, loose regulation and financial speculation in the 1920’s? Hmmm, I wonder what that was – gosh, it’s on the tip of my tongue.
Also, %’s of income spent on necessities have no bearing on wealth distribution; you can have a few very high income earners greatly skew the %’s to look as if everyone is doing better; that is pretty much the story of the past ten years.
I assume that by “fasle consciousness”, you mean false conscience. Which is, something of an old argument although your third sentence: “When oh when will those poor stupid white people realize they should be voting in the economic interest!”, does not follow your opening premise. I think your habit of distorting the contexts of other peoples comments has had some delusional side-effects.
As for your follow up “question”, “When will they wise up – clear their eyes of their false Progressive consciouness / liberal guilt – and finally vote in their economic interest, i.e., for tax cutting GOP candidates?”
When either they forget what a stupid mistake that was in the past, or when the working class unites and collective bargaining is empowered again. Religion and racism will be divisive only until the working-class better understands who their opposition actually is. Then it will be the educated liberals who will be split and along the lines you suggested, the selfish pretenders will then join you and the rest of the vile insects. Delusions being your common bond and spelling and syntax being their contribution to your cause. It should work out just fine.
To answer point 2 while I am not married my father who was married for 54 years held that a woman should have a career as the best form of life insurance. With that the family would not starve and the wife would not have to wait tables. (He was WWII generation) Today with a 50% chance of a marriage ending in divorce a woman should, as Suzy Orman says every week, provide for herself, not assuming there is a man around.
Interesting mention of the kids arguement as statsitics show that women without kids have no pay gap with men, it is that kids do not show the commitment that is desired in business to the business.
Income has been rising for the top fifth of the population and declining for the bottom fifth.
If income is rising for the top one fifth of the population then if you want money one would think you ought to try to put yourself in that group, and if you’re a mother then try to line up your children (maybe send them to economics summer camp) so they make it into that group too.
Uhh, are you agreeing or disagreeing?
Over a long time horizon I think it is obvious that things have improved for all Americans, regardless of income inequality over the last 10 years.
Your point about the 1920’s is spot on, however. The reason for our current income inequality is that same as then, just as we can expect the next 10 years (like the Depression) to result in compression of inequality.
That is, assuming Washington DC gets out of the way and lets the system burn down so we can hit “reset”. If they manage to keep the current bubble economy going we can look forward to even more inequality before an even bigger crash.
The first thing rich people do with their money is protect thier financial advantage over the rest of us. There is nothing to sugest that rich people are more desevering of their enormous advantage. In-equality is important because it buys politicians. This is entirly small “d” undemocratic. The poor can not and the middle class can not buy politicians like the rich. We are in this shithole of an economy becuase there is tto much money in too few hands.
Sarris, has life really improved for all Americans, or is that how you are interpreting some statistics you read? That is a fairly presumptuous thing to say, unless you have surveyed those in the lower economic echelons to get their take on it.
Just so you don’t have any more trouble figuring out my positions, I am pretty much in agreement with everything Linda Beale proposed regarding tax law changes. The laws have all been weighted more and more toward the rich in recent decades, and lowering the highest tax brackets is just part of the many advantages that have shifted toward the rich in the last thirty or so years. The shift in taxes in relation to “wealth” is even more pronounced than “income.” As Warren Buffett (he of the 17% tax bracket) has stated, “Yes, there is a class warfare and the rich class is winnning.” So I hope you experience no further problems determining where I am coming from.
You did not address my point that rl’s statistics are meaningless as to income inequality when such statistics don’t differentiate between the rich and poor – it’s hogwash.
Also, am I understanding you correctly that worldwide depressions are OK with you? Your euphamism of “reset” (which is to “economic disaster” as “auto body restructure” is to “car crash”) bespeaks one for whom economic hardships have not been personally experienced. Sarris, you really need to look at the real world in tandem with your hand-picked charts. There really are a lot of people that don’t have enough food to eat.
The way I see it, we could bat around this and that statistic proving nothing, when what it really boils down to is that many just don’t see or want to see a problem when it doesn’t exist for them. That is a human condition and not a capital offense, but the complete self-serving nature of such views need to be pointed out.
One more thing, the notion that governments ever get completely out of the way is truly a fiction; when the first law went on the books that said it would be illegal for someone to just come in another’s house and take all his/her stuff, government was getting in the way. Perhaps it’s only getting in the way when government is preventing you from doing what you want to do?
To the point about people not working hard due to high taxes, we have 3 counter examples from the 1950-1960s Sam Walton, Ray Kroc, and Dave Thomas, and many others who worked hard and made it in an environment where the tax rate was 90% above about 1 to 1.5 million today. Cleary they had more than money motivating them, or they would have gotten comfortable and just stopped. If someone stops working because of paying to much tax, someone else will take their place.
Terry, great points, particularly regarding Guest, who is no Albert Einstein if he is willing to cut off his nose solely to spite the government’s face. That whole Gault scenario is just absurd. It should be pointed out that the government has to spend less on Terry, too: less wear-and-tear on the roads, less pollution, less law enforcement to help Guest get through the workday unscathed, and so forth.
And, Sarris, last time I checked, there was plenty of fast-food to be had even after the very tardy minimum wage increase.
Also, government gets “in the way” anytime it changes tax laws, regardless of what class wins on the transaction.
Should House members agree to drop their proposed surtax on high-income Americans, that would leave a funding gap. The measure, which would impose an additional 5.4 percent levy on people with incomes of at least $500,000 and couples earning more than $1 million, would raise $460.5 billion over 10 years—-new item
Oh gee, people with incomes of half a million or a million should not have to pay more tax. The dears are so poor it would take food off their table. You need to tax people with incomes of 50,000 to 100,000 instead. They are the ones who have too much income and can easily part with some of it. See how bright people in Congress are. Aren’t we lucky?
The post starts with a quote from Bruce Bartlett suggesting that a) people should stop worrying about inequality and b) that people should concentrate less on beating up the rich. I believe my comment addresses these points by pointing out that inequality could be addressed by helping the poor with increased speding on health care, education and social programs.
For specifics, I think one needs to start with some measure of inequality Both intergenerational income mobility and measures of income inequality such as gini index could work. With both of these measures, the U.S. ranks quite poorly in comparison to other advanced economies. Using either measure, one could quickly define poor, such as for instance, the bottom quintile in income distribution.
In my original comment, I pointed out the Pew Economic Mobility Project as a source discussing intergenerational mobility. As I wrote in my first comment, the Pew Institute (and other researchers) have found a “significant statistical correlations between upward income mobility and gov’t spending on health care, education, and social programs (e.g. welfare, child chare)”. To reiterate a specific example I mentioned, making 4-year university education affordable and accesable to low-income individuals would improve their subsequent income signficantly. This is just one example. If you would like more examples, check out the Pew Economic Mobility Project.
Paris Hilton lives very comfortably off the dividend stream from Blackstone and buyout from this group back in 2007. How many jobs she creates with this wealth is a question. Steve Forbes got his wealth the old fashioned way, inherited it. Naturally, he has campaigned endlessly for a flat tax, no taxes on dividends, and do away with the death tax. The great minds of Wall St. created mounds of paper(derivatives, ect.) which we have found did not create manufacturing jobs, but did create great wealth for them. They also have found numerous ways to hide money offshore to avoid the US low tax rates. Low, will not be low enough, until it hits zero.
The Waltons created a corporation which has made China the star of the 21st century and lowered US hourly wages. They, naturally, think taxes are much to high. The rich do not look at wealth the way most do, to them enough is never enough. They want it all.
Regarding the hypothetical of the wife earning $200K – I very much doubt that the family will forego all daycare expenses if the wife (or the lower-earner) stays home. Also, anybody earning $200K who quits will inevitably feel a significant loss of social status. It’s true, there is a tradeoff – but then, on the other hand, the stay-at-home parent is providing social benefits to offset the loss of their work at their previous job.
Anyway, this is a very specific example, while the argument of the piece (that taxes ENCOURAGE work) is (if true) a general principle. If a hundred New York lower-earning spouses quit, while thousands of go-getters work an extra couple of years before retiring to be able to keep up their lifestyle, society has gained work on balance.
The statistical trends you refer to as “hogwash”, do “differentiate between the rich and the poor”. The poverty rate trend at 71% in 1929, and then at 13 to 15% now, and the amount of time required to meet staple-good needs are clear indications of progress for the working poor. Dr. Fogel won a Nobel for this type of statistical analysis because it shows productivity gains and is therefore more telling than what, you are evidently accustomed to. But using “time”, because it is purely commensurable, is brilliant and absolutely honest. And it is yet another indication of how confused our national debate has become that you do not recognize truth when it is so obvious. Bias does strange things to people. On my spectrum the “General” is a Facist, you are a Conservative, and I am a Progressive. But if you are unable to understand the quote from Dr. Fogel, I doubt that you might understand that your views on poverty in this country are intended to conserve the status quo. But then I doubt that you recognize the relationship between welfare programs and our crime epidemic.
The blog Worthwhile Canadian Initiative has been posting on this issue from the perspective of whether taxing the rich could effectively address income inequality in both http://worthwhile.typepad.com/worthwhile_canadian_initi/2009/11/taxing-the-rich-is-harder-than-you-think.html and http://worthwhile.typepad.com/worthwhile_canadian_initi/2010/01/taxing-the-rich-is-harder-than-you-think.html
The thrust of their argument is that any increases in taxes on the rich (and in particular the super rich) will be largely offset by increases in their pre-tax income by employers. They argue the net effect of any surtax on high income earners will be a decrease in the income of either lower salaried employees, or profits to shareholders.
In the their second post they hold up the recent British example of the 50% surtax on bankers bonuses noting that most banks are going to absorb all or part of the cost of the one-tme surtax http://www.ft.com/cms/s/0/caffc078-fc97-11de-bc51-00144feab49a.html?nclick_check=1
Foolish. Arrogant. Ignorant. These are the first three words that come to mind reading this post. Like the post of most modern excuses for conservatives, it is a strawman argument making unwarranted claims about those who are on the opposite side of the political spectrum from the poster. Somehow it is only fitting that the word dung is used in it.
An outsider’s perspective:
A couple of years ago the OECD published a report on income inequality, which can be found at :
In this report, one of the most surprising findings is that the USA has the most progressive distribution of direct taxes in the OECD – where direct taxes include income taxes and employee social security contributions.
However, the USA has one of the least effective systems of benefits (social security and welfare etc) in the OECD, and it also has one of the most unequal distributions of earnings.
Now I could expand on this but what I think the USA needs to do if it wants to reduce inequality is to collect more taxes from everyone not just the rich and then spend more (and more effectively) on lower income groups. It also needs to address wage inequality, which would require increasing the minimum wage.
rl, I’m sure Dr. Fogel’s work was just dandy; my point is that you are using figures that do not address today’s widening gap between the rich and poor in any way, shape or form – and unless I misread Linda Beale’s post, the inequality is what we are talking about.
The % of working poor do not address the issue, so the studies are not themselves hogwash, but your use of them in this context is. So you might want to reflect a bit further on who is not understanding the studies; a lot of folks misuse perfectly good studies by Nobel Prize winners.
You use this studies to point out what – that we all have it easier today than our forebears? The post is about the widening inequality today; not that it is better than it was eighty years ago. Why not go all in and compare to medeval times – it’s just as germane. Is the point to say the poor today really don’t have it all that bad? I strongly beg to differ.
And, yes, the share of family income used for necessities numbers can be greatly skewed by the rich; my earlier point being that a lot of the rosy economic numbers presented in recent years similarly did not pick up the fact that a declining number were enjoying the benefits of the expanding economy.
Oh, and nice scattershot approach on me being conservative (wrong), my views on poverty (whatever you think those might be), and my views on welfare programs vs. crime epidemic (whatever the heck you think those might be). You do have a little trouble sticking to the subject, don’t you?
‘Guest’ was me.
If you think that my use of Fogel’s stats does not apply, you need to read the article again, starting here:
“I think he is right. I have never understood how I am worse off if
the top 1% of households increase their share of national wealth or income as long as the absolute level of wealth and income of the other 99% is
unchanged. It may be aesthetically displeasing, but it doesn’t impose any
actual costs on anyone as long as the pie is not fixed.”
And “Progressive” is about changing the status quo and welfare programs have been failing to effect progress for many decades, with a wide range of tax policy efforts. What is needed is a combination of policies to change market force factors so as to add value to the compensation levels of the working poor. Removing the farm subsidies, substantial increases to the minimum wage, immigration law enforcement, and a government that supports collective bargaining. But of course that helps the poor while maintaining positive incentives but at the expense of the entire middle-class on up. And that is how Democrats became Conservatives. They only care about the poor so long as they are not required to give up anything. They have given unjust value to mediocrity, and they need to blame the plight of the poor on the rich. But each group is guilty of selfishness, one group is just more capable than the other and in some cases more fortunate.
This is my last response as this is clearly not going anywhere. That 1% / 99% comment is the clearest indicator yet that you are completely missing the point about inequality. How could that ever happen in the real world? The next time I see the top 1% checking to make sure the other 99% don’t get harmed before going after their bigger slice will be the first time. You are living in a make-believe, test-tube world, and now that I’ve read about Fogel a bit, I’m not very impressed with him, and it appears I am far from alone in this regard. Finally, your comments wreak of “let them eat cake,” hardly a progressive position.
Your unsupported nonsense will not be missed. How someone might confuse “let them eat cake” views with what I said about the need to increase wage levels is delusional.
If by “unsupported nonsense,” you mean, “explicitly pointing out the irrelevance of studies I was citing to the subject at hand, for which my only defenses were political labeling, misrepresentation and condescension.”