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Posts Tagged ‘taxes’

Now that the decades of rapidly rising economic inequality have become evident to all, the center of public debate has shifted toward the question of what, if anything, can be done to reverse the trend.

This development is most dramatically displayed in the eagerness with which newly-energized progressives have proposed ideas such as a 70 percent marginal top tax rate, a two-to-three percent annual tax on wealth, and a beefed-up estate tax. Polls show that most Americans, even many rank-and-file Republicans, dislike growing inequality and endorse, at least in the abstract, taxing the rich more. However, when it gets down to concrete action, Americans–with our insistence on “deservingness” and “just desserts”–typically back off from redistribution. We instead prefer expanding opportunities for people to get ahead, especially by broadening access to education.

Unfortunately, while increasing access would make for a more equal inequality–I’ll explain what I mean by that in a bit–it would do little to compress the ever-yawning income and wealth gaps. That is because the core problem is not making the race to the top fairer, although that is a worthy goal, but is making the results of the race to the top fairer. There, the options are even tougher.

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A Cost of Inequality: Growth

A recent story in The New York Times, back in its business section, had important news about inequality: “Income Inequality May Take Toll on Growth.” A couple of economists at the IMF reported research (here) showing that, across many countries, periods of greater income inequality tend to be followed by slow-downs in economic growth.

Percent of All Income Gained by Top Tenth, 1917-2007 (Atkinson et al, 2011)

This is, actually, old news. About twenty years ago the research literature already showed that inequality probably damped the economy (see pp. 126ff here). But this remains important to repeat – not just because reporting the baleful effects of inequality now has the imprimatur of the IMF, but also because so many people still resist the news; they insist instead on believing the opposite, that inequality stimulates the economy, to the benefit of everyone. And, of course, this insistence has political implications right now.

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The Assets Gap

Income inequality is widening, especially in the United States, which already has the widest income inequality among comparable nations. Just about everyone who pays attention knows this. The debate has now moved on to whether growing income inequality is inevitable. Should we just live with it? Is it really bad  — perhaps inequality is just how economies grow? (Wrong.) But in focusing on Americans’ paychecks, we attend too little to the greater component of widening social inequality: wealth.

aging.ohio.gov

It is accumulated wealth that better defines economic inequality, in quite visible ways — the mansion on the hill versus the trailer in the flats —  and in subtle but important ways, too, such as the risks some young people can  take and others cannot. Go to college? Accept an unpaid internship? Start a business? Or, play it safe and  take the cash register job at the supermarket?

Family wealth helps a lot. But wealth is hard to to assess — and to tax.

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