Inflation, Taxes, and Income
To add to the fire Jazz and Steve have kindled, YOY inflation is at its lowest level historically according to the BEA and Next New Deal blog. It does not look like we need austerity policies and a little fiscal fire might put people back to work and stir the economy into growth.
“Last Friday, the BEA announced the lowest year-over-year rise in core inflation it has ever recorded. The year-over-year PCE core inflation, or inflation stripped of volatile energy and food prices, was 1.05 percent. As Doug Short notes, the previous all-time low was 1.06, and that is from March 1963. (The records go back to 1959.) Inflation is collapsing in 2013, both for observed values and future expectations. This is noteworthy because, as you may remember, the Federal Reserve took extraordinary actions at the end of last year to hit its inflation target.” Next New Deal: We Just Had the Lowest Core Inflation in 50 Years. What Does This Mean for “Expectations” and Monetary Policy?
EPI points to a ~40 year tax policy trend favoring Capital over Labor wages resulting in a stagnation of wages for much of the population and a skewing of gains to a small minority.
“Most importantly, new economic research suggests that changes in tax policy over recent decades—particularly reductions in top marginal tax rates—have exacerbated market-based income inequality growth. This is critical because the shift in market-based incomes, particularly capital income’s rise as a share of total income, is driving income inequality growth. Tax policy changes have exacerbated post-tax, post-transfer income inequality by less than one might reasonably suspect, and there are practical limits to how much increased redistribution can push back against strong market trends (though we should be pushing harder). Meaningfully curbing income inequality growth necessitates reducing the market income share accumulating to upper-income households, and higher top marginal tax rates may be one of the more concrete policy levers to advance that end.” EPI: How Much Can Tax Policy Curb Income Inequality Growth? Maybe a Lot
It might be me, but
” new economic research suggests that changes in tax policy over recent decades—particularly reductions in top marginal tax rates—have exacerbated market-based income inequality growth.”
“Tax policy changes have exacerbated post-tax, post-transfer income inequality by less than one might reasonably suspect, ”
“Meaningfully curbing income inequality growth necessitates reducing the market income share accumulating to upper-income households,”
“higher top marginal tax rates may be one of the more concrete policy levers to advance that end.”
with apologies to Run for not reading the whole article, “changes have exacerbated” “less than you might think”
i am all for taxing people to pay for “the general welfare.” I am not so happy about taxing people to “reduce inequality,” but i am all for “market based” restrictions… on business models that amount to fraud or poisoning your neighbors’ well… that would “limit inequality” as a by product.
as well, to the extent that “inequality” inevitably leads to fraud, abuse, and government takeover by the “rich,” inequality itself needs to be addressed… but perhaps more by other means than simple “tax transfers.”
tax transfers leave the market based inequality intact.
meaning that fraud based business models continue to dominate
and the poor remain poor… even if it is “poor with welfare.”
and the fight for higher taxes and more welfare is a loser politically.
you can probably get most of the rich to vote against business by fraud. and you could probably even get them to vote for higher taxes in the national interest. but you aren’t going to get them to vote for higher taxes for more welfare. you won’t even get the “near poor” to vote for that.
A piece of the inequality puzzle is that businesses are spending gobs of money to provide insanely high incomes to their top-tier. Perhaps if you want less of that behavior, tax it? (See, e.g., marginal individual income tax rates–excluding capital gains but including dividends–in the decades before the 1980s.) I’d think that businesses will spend some of that money elsewhere, probably primarily to make themselves more valuable. Maybe some of the money will even go to lower-level employees, or to training and improving employees.
i agree with you in spirit. but i thing the rich and the corporations will always find a way around tax laws. even if “we” had the political power to enact them.
besides, let us say i was the ceo of a corp that employed a million people. would a salary of say one dollar per year for each person who “worked for” me be excessive?
i don’t think our problem is that some people make a lot of money. it’s that some of those people are able to use their money to subvert the good of the nation.. not be costing each worker a dollar a year, but by policies that will hurt all of us a lot for a long, long time.
if all the left has is standing in the streets waving signs and chanting “tax the rich” we are doomed.
besides i don’t think taxing things we don’t approve of …. things we want less of… makes much sense.
if we don’t like something, we can prohibit it… ban smoking indoors. we don’t tax smoking indoors. if we did, people would pay the nickle and blow smoke in your face. and while we do tax smoking in general, it is not obvious to me that that is the reason we “have less of it.”
and taxing things we don’t approve of allows the right to run around crying because taxes “punish success.” and if we tax them they will work less and deprive us all of their irreplaceable genius.
This is not an effort to put new things in place, it is more an effort to return taxes to what they were in MOST cases. The subversion is with the lower taxes which allow the 1% or ~1 million tax payers to escape any payroll tax because their income and resulting tax comes in the form of capital gains which is taxed at a lower rate because it was REDUCED.
Furthermore, payroll taxes for the 1% are so ridiculously low at 39%, it is cheaper for business owners to take money out of a business rather than leave it in the business if payroll wages were the issue. Capital gains taxes allows them to do it at an even lower rate. This is OLD news and nothing new.
Coberly there’s a long American tradition of taxing behavior that we want to discourage for the larger good. Starting with tariffs imposed by the founding fathers, right up to “sin” taxes today. It’s not always a bad thing–unless carried too far, as with so many things. And as Run said, nobody would propose anything re income taxes that wasn’t the norm for decades, under GOP and Dem administrations, from 1917 to 1981 excepting the Coolidge/Hoover years.
not arguing about the need to tax the bstds. arguing about how to go about it. rhetorically.
y’know i think we could have avoided all this trouble if Hamilton had just gone around and explained to all the distillers that they could, you know, just add the cost of the tax to the price of the whiskey.
I entirely agree that inequality makes for a losing rhetorical argument, as we indeed have seen. The winning rhetoric has been “freedom” even if this really has in practice meant freedom only for the super-wealthy. Rather than calls for equality, voters are more likely to respond to the rhetoric of more economic growth, higher incomes, and more job opportunities for THEM. One potentially workable rhetorical device is to return today’s top tax bracket to the rate that Reagan gave us when he was first elected and led us into “morning in America.” That would be a marginal rate of 50 percent (including on dividends). Rhetorically, the additional money would boost needed local infrastructure projects benefiting local businesses, and to maintain our defenses. The rhetorical case for more tax brackets on top is harder, but maybe argue today that we need a temporary (meaning 10-year) period of “austerity” to right this country as conservatives have been demanding–but austerity for millionaires and billionaires who can afford it.
i have been calling for a temporary patriotic deficit emergency surtax of 10% on income over 100k.
will that do it?
please note, i don’t think we have a deficit emergency, but until they agree that the deficit is not an emergency I think they should be willing to pay the taxes to bring it down.
and of course i wouldn’t mind if those taxes were spent on something that increased employment and general life prospects for the least of these.
Coberly that’s a reasonable proposal and calling on patriotism is a good rhetorical device, but the purpose–addressing the deficit–is a very tough rhetorical sell. The proposal needs a purpose that resonates somehow. Even Simpson, Bowles, and Ryan don’t give a darn about the deficit except as their current reason to cut government (especially “entitlement”) spending.
Change of topic from taxes to inflation. Just an observation from a non-economist, non-wonk. I have observed, as have many of us, that companies are reducing product amount while maintaining price, not just by physically reducing the size of the product, or changing the packaging to remove a bit of room for product (the “dimple” in the bottom of the peanut butter jar saves Kraft or whomever tons of $$$. Now I see they are reducing the actual substance of the product, in this case, cat food, and replacing the volume and weight with “gravy”.
This kind of paying more for less doesn’t seem to make it into the inflation figures.
i agree that bowles simpson and even peterson don’t care about the deficit.
but as long as they are using “the deficit” to promote destruction of our society, i think we ought to use “the deficit” to call for higher taxes to save our society.
i have noticed that as well. I think “cheat the customer” has now become a standard part of every business model. i don’t know how it affects “inflation”, but a trip to the local Safeway should convince you they spend a lot of time making it hard for customers to know how much they are paying for actual product.
As a follow up to this conversation, today’s NYTimes had a relevant piece –
I apologize for not answering sooner. You are entirely correct on the smaller contents of a product in the same size container. As an Italian-American, some examples come to mind. Hunts tomato sauce (no salt added) is 15 ounces in what was a 16 ounce can. Ronzoni Smart Penne (fiber) is 12 ounces in a 16 ounce box. The price does not go down, just the product weight decreases. It gives the illusion of getting the same quantity if you do not read the box.
While commodities might have increased, I do not buy the Labor and Energy arguments as oil has remained remarkedly cheap as well as natural gas. Labor certainly has not seen huge increases either and has not advanced faster than inflation. It sounds more like profit taking.