Ian Ayres on the Brandeis Tax
by Linda Beale
Ian Ayres on the Brandeis Tax
I’ve often argued here that vast inequality is harmful to democracy, and that the kind of unequal society that we have today, reflected the Gilded Age of yore, is especially worrisome. Much of what is happening in this country that threatens freedom and economic suffering for many is related to the vastly unequal incomes and wealth of the top 1% compared to the rest of us. Oligarchy finds it easy to flourish in such a society, and democracy struggles to keep its head above water. The corporatist agenda that favors big business (and its owners) facilitates the capture of the state for the benefit of the rich–lobbyists swarm legislators, and campaign funding by corporations floods the airwaves with repetitive (and hence believed even if untrue) messages favoring corporatist allies.
The main defenses that a society has against such developments are twofold: 1) a strong sense of community that incentivizes the uberrich to give a good bit of their wealth away to help the community and 2) a strong tax system–especially estate taxes and other taxes that fall primarily or exclusively on the uberrich as a way of skimming off the excess rents they have acquired because of their status and unrelated to genuine merit or hard work. {As Elizabeth Warren said, nobody can claim to have earned all they earn without the help of the state, and the wealthy in particular depend on the state to protect their property and even their status.) Hence I talk here of democratic egalitarianism and my view that equilibrium is not a realistic state so redistribution is always occuring. Most redistribution will be ‘upwards’ for the benefit of those at the top, unless democratic institutions push for a rebalancing redistribution ‘downwards’ to assist those in the middle and lower income groups.
Ian Ayres has a series of postings on a proposed “Brandeis” tax intended to impose limitations on the inequality gap.
Don’t tax the rich, tax inequality itself, New York Times, Op-Ed, Dec. 18, 2011.
In 1980, the wealthiest 1 percent of Americans made 9.1 percent of our nation’s pre-tax income; by 2006 that share had risen to 18.8 percent — slightly higher than when Brandeis joined the Supreme Court in 1916.
Congress might have countered this increased concentration but, instead, tax changes have exacerbated the trend: in after-tax dollars, our wealthiest 1 percent over this same period went from receiving 7.7 percent to 16.3 percent of our nation’s income.
What we call the Brandeis Ratio — the ratio of the average income of the nation’s richest 1 percent to the median household income — has skyrocketed since Ronald Reagan took office. In 1980 the average 1-percenter made 12.5 times the median income, but in 2006 (the latest year for which data is available) the average income of our richest 1 percent was a whopping 36 times greater than that of the median household.
Brandeis understood that at some point the concentration of economic power could undermine the democratic requisite of dispersed political power. This concern looms large in today’s America, where billionaires are allowed to spend unlimited amounts of money on their own campaigns or expressly advocating the election of others.
There will be rich always: finding a new way to think about income inequality, Freakonomics, Dec. 20, 2011.
The vast shift in national income toward our richest 1 percent is especially vivid if their income is expressed in terms of the median household income. Indeed, an important goal of our op-ed was to suggest a new unit of measure, “medians” to help us think about what it means to be rich. In 1980, if you earned 3.8 medians, you were in the top 1 percent, but by 2006 even the poorest in the 1 percent club earned 6.9 medians.
What we call the “Brandeis Ratio,” the average income of the richest 1 percent (which includes the billions earned by the lucky few) has grown even more disproportionate. As shown in the chart below, in 1980, one-percenters on average made 12.5 medians, but in 2006 (the latest year in which data is available) the average income of our richest 1 percent was a whopping 36 medians.
An inequality tax trigger: the Brandeis Ratio explained, Freakonomics, Dec. 21, 2011.
A central idea behind our Brandeis tax proposal was to have a tax that is triggered by increases in inequality. Our Brandeis tax does not target excessive income per se; it only caps inequality. Billionaires could double their current income without the tax kicking in — as long as the median income also doubles. The sky is the limit for the rich as long as the “rising tide lifts all boats.” Indeed, the tax gives job creators an extra reason to make sure that corporate wealth does in fact trickle down.
***
As emphasized by Lawrence Lessig in Republic, Lost (presaged somewhat in Ayres’ book with Bruce Ackerman, Voting With Dollars), the bulk of campaign finance dollars comes disproportionately from not just the 1% club, but the richest one-half of one-percenters. Focusing on the average income of one-percenters is a good proxy for the rising political power of plutocrats.
Of lags and caps: possible implementations of a Brandeis Tax, Freakonomics, Dec. 26, 2011 (discussing potential ways to deal with bunching of income and the question of work disincentives–see my earlier post on Greg Mankiw).
originally published at http://ataxingmatter.blogs.com/tax/2011/12/ian-ayres-on-the-brandeis-tax.html
3) Changing the laws that would disallow politicians from taking money from individuals or coporations.
Higher taxes does not fix the influence problem, but make it worse becuase lobbying becomes more valuable.
3) Changing the laws to new ones that disallow politicians from taking money from individuals or coporations.
Higher taxes does not fix the influence problem, but make it worse becuase lobbying becomes more valuable.
Linda
right problem, wrong answer
strong sense of community that incentivizes the uberrich to give a good bit of their wealth away to help the community
no, not “give away,” “use to help build a better community.”
and 2) a strong tax system–especially estate taxes and other taxes that fall primarily or exclusively on the uberrich as a way of skimming off the excess rents they have acquired because of their status and unrelated to genuine merit or hard work.
no. “tax the rich” won’t work. it makes them fight to keep what they think of as their’s. you can invent policies that restrict the ways in which it is possible for people to get “unearned” money, and invent policies that improve wages and living conditions for “the poor” without simply wading in and taxing the rich and “giving away” their money.
moreover the whole attitude is suspect. how do you “make a better community” by encouraging the poor to covet wealth? do you seriously believe that money is the highest goal of man?
and, trivial as it sounds, calling people “uberrich” is offensive. it depersonalizes them and is not so far in spirit from calling the “other” “untermensch.”
Coberly, I think you are too hard on Linda. I really think we need to have a much more progressive income tax on all income. Not only would that produce the revenues to fund the policies that would benefit the other 99% and encourage investment in the community–better that than letting it go to the Feds–if the incentive for astronomical income went down, maybe the 1%s would be less inclined to lie,cheat and steal to get it. They might even discover reasons for living and succeeding other than accumulating more and more wealth. Okay, that is a stretch, but some might at least think about their future and legacy and that is likely to be better for society.
terry
i don’t mean to be hard on Linda. I just think her rhetoric, if not her approach, is self defeating.
I think the rich do need to pay more… at least enough to pay for what their government already bought, and then what it takes to have a civilized society. and yes, it has to be “progressive.”
but it cannot be seen as “punitive,” or “equalizing.” most people believe in fair play, and even the rich believe they “earned” their money. so yes, find a way to pay for what we need, and that will inevitably raise taxes on the rich, but we ought to be ready to raise our own taxes or we are just hypocrites.
and i am afraid that there will always be those who lie cheat and steal. we could concentrate on reducing their opportunities, but not a good idea to just assume that everyone who has more than you lied, cheated, and stole to get it.
oh, and in case i am not clear… the “tax cuts forever” politics and economics we have had for the past thirty years is stupid and destructive. and using tax cuts as a “stimulus” to an economy that is dying from overstimulation is… more of the same.