I guess I get to say I told you so. After reading hundreds of thousands of words about economic inequality written by the world’s greatest minds, I sense consensus is moving towards what this social worker had figured out five years ago. Wealth and income inequality is growing and it is doing irreparable harm to this country’s and the world’s economies while burying the dreams, hopes and aspirations of millions of Americans and billions on the planet. This growing phenomenon which seems to have caught so many by surprise is not a natural byproduct of capitalism, per se. We had decades of relatively egalitarian income distribution and strong economic growth in the United States following the Great Depression and World War II. Inequality is a byproduct of unchecked capitalism and supply-side economics. Hello.
Last week’s Spring Meetings of the World Bank and International Monetary Fund provided the most recent confirmation that inequality is wreaking havoc on the world’s economies. IMF managing director Christine Lagarde and World Bank President Jim Yong Kim both addressed the issue of growing economic inequality. While they agree that inequality is escalating and something needs to be done about it, neither recommended policy changes that might alter the trend. Ironically, the austerity policies of both organizations have exacerbated the problem by favoring wealthy investors.
This debate has been going on in the United States for years and gained public awareness when short-lived Occupy Wall Street demonstrations got the media’s attention about how the 1% was reaping all the economic benefits at the expense of the rest of us. This fact was undeniably documented by economists Thomas Piketty and Emmanuel Saez in the paper The Top One Percent. The growth of inequality in America is on steroids.
CEOs of 350 top U.S. corporations now have average salaries 331 times those of the average American worker. In 1950, that ratio was 20 to 1 and had grown to 42 to 1 in 1980 just as President Ronald Reagan was implementing supply-side economic policies. Give more money to the “job creators” was the mantra. After President Bill Clinton reversed these tax policies a bit, the economy did thrive, but President George W. Bush soon went back to supply-side policies with a $1.3 trillion dollar tax cut that largely favored the rich. While the rationale for these tax policies was to stimulate the economy, there was also the hope they would starve the federal government and its ability to fund social welfare programs. Add to this union-killing policies and it is not difficult to understand why so many American workers are suffering.
While this debate was emerging I was trying to explain to students in my policy classes what seemed obvious to me: as more income and wealth was moving to the top of the economic ladder there was a decrease in overall economic demand which reduced growth. Hourly wages had been pretty much stagnant for middle- and low-income earners since 1979. Average Americans saw their disposable cash dwindling and their credit card bills skyrocketing. They were no longer able to afford getting a new roof for the house or buying a car for the kid. Shifting more income and wealth to the wealthy was hurting the economy.
Yet few economists saw it this way. Even the left-leaning Nobel laureate Paul Krugman dismissed economic inequality as the source of anemic growth in the U.S. Others halfheartedly conceded that there might be a connection. Why? Because to accept this premise would mean undoing supply-side tax cuts and replacing them with more progressive taxation which conjures up that dirty word “redistribution.” No problem redistributing income upward, but to shift income downward is class warfare.
The good news is that all credible economists will soon arrive at the conclusion there is no other way to fix this problem. Early child education won’t do it. Raising the minimum wage—while the right thing to do—will have scant effect on inequality. Job training won’t fix the problem. Progressive taxation is the only way to fix this says Thomas Piketty
whose new book, Capital in the Twenty-First Century, is capturing the attention of the world. In the end, it will be up to citizens to elect people who will save us from disasters like economic collapse and global warming. The sooner we get started the better.
The post Progressive Taxation is the Only Way to Fix the Economy appeared first on Congressional Research Institute for Social Work and Policy.
Written By Charles E. Lewis Jr., Ph.D
Progressive Taxation is the Only Way to Fix the Economy was originally published @ Congressional Research Institute for Social Work and Policy » Charles Lewis and has been syndicated with permission.
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Great suggestions re, fixing the large inequality that exists in today’s progressive federal income tax levels and anemic capital gains tax. Another critical area needing tax reform is the “intangible tax” system at state (and mostly) local levels. Paper assets, ie, stocks, bonds, remain one the largest areas of untaxed wealth in the USA, allowing the mega rich to continue building their wealth at lighting speed. Inherited wealth , as economist Thomas Piketty has outlined in his new book, is also a prime factor because it is a transfer` of untaxed wealth. Paying little or no tax into government by the mega-rich and their private corporations further increases inequality and public debt. We must forcefully combat this inequality that threatens democracy and sustained economic growth.
Piketty’s thesis is simple: ” Inequality is intrinsic to capitalism, and, if not forcefully combatted, is likely to increase—to levels that threaten our democracy and fail to sustain economic growth. Karl Marx predicted much worse—runaway inequality leading ultimately to social collapse—and Piketty takes care to distinguish his view from Marx’s apocalypse. Even so, his thesis runs directly counter to mainstream economic theory, which holds that inequality should eventually decline, a process known as “convergence.”
Regards, Doug Stephenson, LCSW,BCD (Fla)
I am calling BS on this.
One, the government has more money than it has ever had.
Two, the poor doesn’t pay federal income taxes now, so changing the progressive tax system doesn’t fix income inequality. In fact they pay negative taxes according to nbc(http://www.cnbc.com/id/101264757.)
Three, it use to be that if a man had a truck and the will he could start his own business. Today, the cost of starting your own business is out of reach for the most folks. Look at the cost of becoming an owner operator truck driver. Skills required are minimal, Capital costs between EPA approved Equipment, Liability Insurance, Fuel Costs, and License Plates in the thousands are way out of reach these days for someone to get started. So a business that anyone could start is no longer an option for most. It is like this for most small businesses. Between that and all the legal red tape to get permits and pays taxes(Excise, Social Security, Medicare, Income, Sales, Use, Road Taxes and a list of many others). This stuff can be very difficult and confusing to navigate for a common man. There are few places, even on the net that tells you all the red tape you need to know about. This concept of you can make a great living in this country was built on the idea that if you had the will, worked hard and had a good idea you could make it big. No such hope of getting a new business off the ground today. For me Social Justice has little to do with Social Welfare and more with opportunity. While I agree that we have issues with the economy, every new regulation that Washington comes with only helps large businesses that have the capital to comply and keeps the entrepreneurs(competition) at bay.
Four, your comment of ” After President Bill Clinton reversed these tax policies a bit, the economy did thrive” is correlated to your conclusion in the most minute way if at all. The economy thrived because of new technology and the demand for it. Then the bubble burst, then 911 happened shortly after, then Bush made the cuts. His cuts did go to the bottom. I remember getting a refund of hundred of dollars. 1200 i believe.
Lastly, the recession has been over since a couple months after Obama took office. Unemployment, is lower than it has been in years and you are telling us you want to fix the broken economy. Despite that I still agree it is broken.
Here is my suggestion, get Congress to pass legislation that promotes jobs. Like eliminating Obama-care. The only ones that Obamacare helped are the big insurance companies. Don’t believe me. Look at Well point stock over the last year. My rates didn’t go down and I am in the low middle class. You can take all the money the rich have and it won’t make a dent in the problems you have before you. So changing the the tax system will accomplish next to nothing. You need to change Washington and make it easier for the small guy to start a business with dishing out taxpayer money to do it. Then you need to change the incentive for not working. When a women can have more children our of wed lock and receive more government assistance there is a problem. And when she moves a man in to help take care of her and the kids she loses her independence and income, that is a problem. Why would she ever give up the government money on a chance with someone that could be a loser? We all know that the surest way out of poverty is a family unit. This has been the case throughout all of history. Get people back to that traditional idea and you will be one step closer to ending this cycle.
One doesn’t not need an economic degree to understand what motivates people.
PS.
The good news is that all credible economists will soon arrive at the conclusion there is no other way to fix this problem. Disagree
Early child education won’t do it. Agreed
Raising the minimum wage. – Agreed
Job training won’t fix the problem. Agreed but necessary because of the rate of technology change is faster than ever.
The fact that you’ve taken the time to write a lengthy response suggests to me that this is an important topic for you. And, like many on the right who deny the negative impacts of economic inequality, you dismiss it as the demagoguery of the left. Little in your response directly counters the points I made in my post. The problem is lower aggregate demand in the economy because too few people have adequate disposal income which is more a problem with the middle class than the poor.
However, it’s going to be real tough to dismiss the rigorous work of Thomas Piketty. Yet the attacks have begun–not by countering his research–but by falsely labeling him a Marxist. That tells me he’s on the something.