When I first began writing this blog almost two years ago, most people thought it was rather cheeky of me to talk about egalitarianism. After all, the "free market" school propounded by Milton Friedman at Chicago and the accompanying "law and economics" mania instigated by Henry Manne at George Mason and shipped from there out to law schools across the country has taught hundreds of economists, lawyers and judges that greed is good and efficiency is the only reasonable means of assessing laws--even tax laws, which perhaps most symbolize the important relationship between nation and citizen and therefore demand a fair hand.
In these two years, I have written a great deal about what I call the "ordinary" taxpayer--those in the lower four quintiles of the income distribution who do not enjoy the wealth, privilege and access of the upper crust. I've suggested that capital gains, AMT and international taxation should all take the ordinary taxpayer into consideration. Economists and conservatives and others who want to decrease the size of government--or at least starve all education, arts, and social justice entitlements-- argue that growth will "trickle down" (from the wealthy if they get to pay no tax on their capital gains and "reinvest" in job-growing entrepreneurial activities) or "trickle back" (from the corporations we help "compete" overseas by reducing their tax obligations and letting them create factories and jobs abroad yet be taxed less on their profits than domestic corporations that clearly create jobs at home) (see Alan Cathcart's comment on my last posting about the active financing exception).
In fact there is little reason to expect trickle back--as more and more corporations are investing more abroad (GE recently announced a new investment in China, in spite of the risk it sees), or trickle down--as more and more executives take home immense pay while their workers barely scrape by without the power that unions would provide to negotiate with strength. This trend is global: 2% of the Earth's adult population owns 50 percent of its household wealth. National Geographic, April 2007, at 119. But it is especially worrisome here because this disturbing income gap threatens democratic institutions and makes oligarchy more possible.
David Cay Johnston notes that "total reported income in the United States increased almost 9 percent in 2005 ... [but] average incomes for those in the bottom 90 percent dippled slightly compared with the year before.... The gains went largely to the top 1 percent, whose incomes rose to an average of more than $1.1 million." Income Gap is Widening, Data Shows, New York Times, Mar.29, 2007, at C1 (noting that 2005 data show the top 10% with an income share not seen since before the Great Depression). The top 300,000 in the U.S. get almost as much annual income as the bottom 150 million. Id. As Johnston notes, those statistics, based on income tax returns, likely grossly understate the income of the top few. Wage income is reported and withheld, and that is the main income of ordinary taxpayers. But the upper crust has mostly investment income, which is not as likely to be accurately reported or taxed.
Robert Greenstein at the Center for Budget and Policy Priorities told Johnston that the picture may be even worse than that--cuts in fringe benefits and government services, especially important for ordinary taxpayers, have accompanied the rising incomes and reduced taxes for the super-wealthy. That "raises serious questions about continuing to provide tax cuts averaging over $150,000 a year to people making more than a million dollars a year, while saying we do not have enough money" for education and health care. Id.
Edward Lazear at Stanford (Bush's chair of the Council of Economic Advisors) thinks the term "income inequality" is bad, because "it suggests in a somewhat pejorative way that the rich are getting richer at the expense of the poor." See Greg Ip and John D. McKinnon, Bush Reorients Rhetoric, Acknowledges Income Gap, Wall St. Journal, Mar. 26, 2007, at A2. But of course the rich are getting richer at the expense of the poor, in any terms that really matter, no matter what the economists say. Imagine a world in which those profits going to the top 5% of the income distribution were being plowed back (through much more progressive taxation, including elimination of the preferential capital gains tax) into governmental programs for the good of all society--universal health care, universal provision of adequate resources for kinder through 12th grade, and universal college education. The rich would be somewhat less rich, but the poor would be a heckuva lot richer and our democracy and our economy would ultimately be better off.
Even Bush, who has been a major facilitator of the income gap, has acknowledged recently that "Income inequality is real". Id. But the Journal goes on to note that "[t]op White House economic officials still don't consider today's inequality--the growing share of income going to those at the top--an inherently bad thing; they believe it simply reflects the rising rewards accruing to society's most skilled and productive members." Id.
Pardon me? Kenneth Lay, who made millions from Enron, but was indicted and found guilty for his role in the tanking of Enron, causing loss to shareholders and employees? Conrad Black, facing trial for allegedly illegal activities? Wheelers and dealers, yes, but "skilled and productive"? Many of these top executives have reaped huge rewards and golden parachutes while driving their companies down. Others have worked but gotten disproportionate rewards compared to their workers because of crony relationships with those on the boards who set their compensation. Then there're the hundreds of companies where options were back-dated to give the execs an even sweeter deal.
Even skilled executives are not so much more skilled than many others in our economy that are only meagerly paid for devoted work, like the average worker in their companies who earn one-fourhundredth what their execs earn or schoolteachers, policemen, and doctors who work in clinics that mostly treat the poor. Come on--it's not the "skill" or the hard work that is being rewarded in these outsized executive compensation packages. It's the company's value--sometimes pre-existing and certainly a product of the many workers who are treated as so many fungible items of input-- or the rental value of favoritism. And it's not entrepreneurialism that is being rewarded. Most of that comes from little people who get a big idea and work to make it happen. What is garnering the rich their increased wealth, that is, is their existing wealth (and the contacts that go with it) and/or their roles at the helms of big companies.
The Journal notes that the administration is beginning to adjust its rhetoric on the heels of the election, but only in small ways--it "hasn't yet offered any sweeping proposals to resist the market forces producing inequality." Id. Note that assumption that it is market forces creating inequality and not the fact that those same powerful, monied interests that work together in the board rooms also hold too much sway in Congress and get laws and regulations written in their favor in ways that create a market that works for them and against the average worker. The Journal carries a nice graph adapted from Moody's Economy.com's elaboration of Commerce and Labor Department statistics. It shows GDP surging over the last three years, but the median wage mostly flat or negative. In other words, what economic growth there has been has not gone to the ordinary taxpayers I write in favor of.
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