Entries Tagged as 'inequality'

Downwardly Mobile America

November 7th, 2011 at 2:07 am 39 Comments

James Pethokoukis has posted a new chart on his blog as part of his ongoing commentary about income inequality in America. In this post, he argues that “alarmists” are wrong to worry about income inequality because America has a lot of upward economic mobility:

Turns out that the Tax Foundation has also looked at the economic mobility issue. Using IRS data, it found that about 60 percent of households that were in the lowest income quintile in 1999 were in a higher quintile in 2007.About 40 percent of households in the top quintile moved to a lower quintile over this 9 year period.

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There is No Increased Inequality, Unless You Look at the Top 1%

November 3rd, 2011 at 12:30 pm 40 Comments

Shikha Dalmia writes that “Greedy Capitalists Hogging Wealth Are Not Causing Income Inequality.” In her blog post she cites the lack of significant change in the Gini index of inequality among U.S. individuals in recent years:

I’m a bit confused, because there is another famous graph from Piketty and Saez which suggests that inequality is a real phenomenon. (The graph is all over the place on the web, here’s a link from John Schmitt that I found in a quick Google image search):

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What’s at Stake in Ryan’s Budget

April 5th, 2011 at 8:03 am 47 Comments

Tomorrow, Rep. Paul Ryan will release his highly anticipated budget plan.  Early reports suggest that along with serious changes to Social Security and Medicare, the budget will trim nearly $4 trillion from the 10-year budget deficit.  I don’t know how the Left will react, but I’m confident that they’ll overreact.  And I’m hoping that when the dust settles, we’re having a more intelligent conversation about spending cuts than we’ve had during my lifetime.

Of all the things I can’t stand about politics, the tendency to emotionalize a difficult topic is probably the worst.  Budget cuts hurt—just ask our friends in the United Kingdom.  But budget cuts are coming, because our entire welfare system depends on a false premise: a rapidly growing population.  It’s a pretty simple concept: the taxes from young workers support the benefits of elderly dependents, so the system works fine so long as the young significantly outnumber the old.  Our system is stressed because the number of retirees is growing at a faster pace than the number of workers.  And America is actually relatively lucky; most countries in Western Europe face a far more serious population problem than we do.

I doubt, however, that I’ll hear many Democratic politicians acknowledge this fact after Ryan releases his budget.  I expect to hear, instead, horror stories about budget cuts and how they lead to starving schoolchildren.  The irony is that the Left’s overheated reaction to budget cuts is rooted in a legitimate worry about America’s growing income inequality.  On this point, the Left is right.  The United States has one of the lowest rates of social mobility in the industrial world, a stark difference compared to only a few decades ago.

But the real inequality in this country is not between rich and poor in 2011, but between the middle class of 2011 and the middle class of the future.  Edmund Burke argued that society was a compact between those who are living, those who are dead and those yet to be born.  Without serious budget cuts, America will transfer trillions of dollars from the yet to be born to the living.  Every dollar spent is a dollar that must be taxed, and the Left seems oblivious to the fact that the tax burden of today’s profligacy will fall hardest on future citizens. How’s that for wealth redistribution?

The other answer, of course, is to raise taxes on people now.  That’s not a great idea, as economists from across the political spectrum argue that raising taxes in the midst of a recession is bad for growth, and growth is the one thing that can close the budget gap faster than entitlement reform.  More importantly, increased revenue will only take us so far—with a projected deficit of well over $1 trillion next year, a return to pre-Bush era tax rates would fill, at best, about 10 percent of our current fiscal hole.  I am not one of those conservatives who shudders at any mention of tax increases, but like every thoughtful American, I realize that soaking the rich is a painfully inadequate solution.

The way forward is as obvious as it is politically difficult: streamline the tax code, reform current entitlements and avoid enacting new ones.  But the possibility for any meaningful change depends on the Democratic reaction to Ryan’s new budget.  I hope that Ryan’s budget starts a needed conversation.  But what we’ll probably hear is scare tactics and assurances that the same old Republican brand of politics will hurt the same old Democratic constituencies.  And the whole time, I’ll be thinking to myself: if these people gave a damn about inequality in this country, they’d be leading the charge for budget cuts instead of opposing them.


How Progressive Taxation Punishes Hard Work

David Frum April 2nd, 2011 at 1:04 pm 47 Comments

My friend Kip Hagopian has a very thought-provoking article in the current issue of Policy Review on the (in)equity of the progressive income tax.

Here is a core point:

The progressive taxation of income from work effort is inequitable. Income is derived primarily from a combination of aptitude and work effort. All things being equal, people with high-value aptitudes earn more than those with low-value aptitudes. Each tier of aptitude (whether there be 100 or 10,000 such tiers) comprises a “mini-society” in which differentials in income between the members are derived almost solely from work effort. Under a progressive tax system, workers whose work effort is above the median in their aptitude tier will pay higher average taxes per hour than those below the median. As a result, at any one point in time, an unacceptably large percentage of the total work force will earn less average, after-tax income per hour than their peers, simply because they worked harder. This is inequitable on its face.

Policy Review does not invite comments, but Kip Hagopian has established his own site, KipHagopian.com, where he invites and welcomes thought and discussion.