Tag Archives: Inequality

Tax and Mend

In the last few days, I’ve come across a couple of intriguing tax proposals aimed at reducing the gap between the 1% and everyone else.

We already index taxes for inflation, so Yale economist Robert Shiller wants to know why we can’t index them for inequality as well — and tax the rich at higher rates as the nation’s income becomes more concentrated at the top.

Shiller and his colleague Leonard Burman suggest a plan that would offset the loss in tax revenue that occurs when we index for inflation by imposing higher tax rates on income falling in the top tax brackets.  (Shiller, clearly an optimist, thinks this approach might even be achievable in the current political environment.)

Shiller thinks we need to see our income taxes “as a colossal insurance system, guarding against extreme income inequality.”

Good idea, but I’m not as optimistic as Shiller–I don’t think such a proposal would survive the displeasure of the guys who pay the lobbyists.

A bill I really like has somewhat better prospects, and has actually been introduced in California.

California’s pending Senate bill 1372, introduced by state senators Mark DeSaulnier and Loni Hancock would tie state corporate income tax rates to corporate pay disparities.

Corporations in California currently face an 8.84 percent tax on their profits. The DeSaulnier-Hancock legislation would up that rate to 13 percent for companies that pay their top execs over 400 times what their typical workers are making.

The same legislation lowers the state corporate tax rate to 7 percent on companies with a CEO-worker pay divide less than 25-to-1. Under the bill, all firms with a ratio under 100-to-1 would end up with a tax cut, all above with a hike.

Carrots and sticks….

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Who Gets What–And Why

Joseph Stiglitz–a Nobel Prize-winning economist–recently testified before the Senate Budget Committee about America’s growing inequality. 

As disturbing as the data on the growing inequality in income are, those that describe the other dimensions of America’s inequality are even worse: inequalities in wealth are even greater than income, and there are marked inequalities in health, reflected in differences, for instance, in life expectancy. But perhaps the most invidious aspect of US inequality is the inequality of opportunity. America has become the advanced country not only with the highest level of inequality, but is among those with the least equality of opportunity—the statistics show that the American dream is a myth; that the life prospects of a young American are more dependent on the income and education of his parents than in other developed countries. We have betrayed one of our most fundamental values. And the result is that we are wasting our most valuable resource, our human resources: millions of those at the bottom are not able to live up to their potential.

Stiglitz made several important observations about the situation in which we find ourselves: first–and perhaps most importantly–he pointed out that our current levels of inequality are the result of policy choices we have made, either deliberately or inadvertently.  Stiglitz identifies our  education system and the manner in which it is financed, our health system, our tax laws, bankruptcy and anti-trust laws, the functioning of our financial system, corporate governance…. and he says that existing policies in each of these areas help enrich the top at the expense of the rest.

Stiglitz also pointed out that the folks currently enjoying their status as members of the 1% are “not those who have made the major innovations that have transformed our economy and society.” They are disproportionately the manipulators and rent-seekers, the speculators and financiers–not the entitled producers or “makers” they evidently believe themselves to be.

Stiglitz noted that “trickle-down”–the belief that gains at the top will eventually raise the prospects of those on the bottom–has been thoroughly discredited. He explained that the recent Great Recession has exacerbated–but not caused–our growing inequality.  He underlined what should be obvious to all of us by now:  jobs are not created when wealthy individuals get to keep more of their money–they are created by demand, and when middle-class folks don’t have discretionary income, demand remains weak.

In a recent column, Paul Krugman–also a Nobel prize winning economist–explained why improving demand is so critical:

Economists who took their own textbooks seriously quickly diagnosed the nature of our economic malaise: We were suffering from inadequate demand. The financial crisis and the housing bust created an environment in which everyone was trying to spend less, but my spending is your income and your spending is my income, so when everyone tries to cut spending at the same time the result is an overall decline in incomes and a depressed economy. And we know (or should know) that depressed economies behave quite differently from economies that are at or near full employment.

Stiglitz also talked bluntly about the likely consequences for the country–both democratic and economic– if we don’t change the policies that are feeding, rather than curing, the problem.

His entire testimony is both depressing and illuminating, and well worth reading.

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A Different Kind of Economic “Bubble”

In my Media and Public Policy class last week we were discussing the ways in which the Internet has given us the ability to live in “reality bubbles” of our own choosing, when an older student made a perceptive observation. She pointed out that when she grew up in Martinsville, she’d been surrounded by a “bubble” of bigotry–she’d lived in a small community of homogeneous people who all thought alike. In her case, the Internet had provided an escape from the bubble.

We all live in bubbles of one kind or another, and that ability to isolate ourselves from those with whom we do not share geography, religion, common interests and experiences can stunt our human empathy. When our distance from each other becomes too great, civility and self-government suffer.

Joseph Stiglitz is a Nobel-winning economist, and he has just written a book called The Price of Inequality, examining the effects of  the currently huge divide between the rich and everyone else on our ability to sustain a democratic government.

He isn’t sanguine.

According to Stiglitz, the vaunted American market is broken. It has been overwhelmed by politically engineered market advantages—special deals that economists call “rent-seeking.” The term refers to politically-achieved “exemptions” from the market that allow certain individuals to reap economic returns above normal market levels– profits derived from favorable political treatment rather than competitive success.

In The Price of Inequality, Stiglitz chronicles these blatant tax and spending giveaways–the special deals and corporate welfare enjoyed by big agriculture, big energy, and many, many others.

Stiglitz also argues that much of the rent-seeking that plagues our economy takes a more subtle form. In many cases, the production of a product produces what economists call “negative externalities.” These are costs that are incurred during the manufacturing or development process that end up being imposed on society rather than paid for by the producer and included in the price of the goods or services involved. The most commonly cited example would be a manufacturer who discharges his waste into a nearby waterway rather than properly disposing of it, shifting the costs of cleanup and disposal to others. Society pays for the pollution, and that cost is not included in the market price of the manufactured goods.

The bottom line is that markets don’t operate properly when some participants are in a position to game the system, and societies don’t operate properly when markets are rigged.

As he points out, one of the consequences to society is that when those at the top–the 1%–enjoy the best health care, education, and other benefits that come with greater wealth, they fail to realize that “their fate is bound up with how the other 99 percent live.”

They live in a bubble.