“Acting As Political Human Shields”: The Upper Middle Class Needs To Stop Coddling The 1 Percent
The most criticism I’ve ever received as a writer came from articles suggesting that we curtail tax expenditures that mainly benefit the rich, like the mortgage interest deduction or 529 college savings accounts. (Okay, second-most — the top hate mail–getter, by a large margin, was a quite different issue.)
Why? As President Obama himself found last week, the last people you want to piss off are members of the upper middle class, who are set to a hair trigger when it comes to their personal government handouts. As Paul Waldman writes, they may be “the single most dangerous constituency to anger,” because a) unlike the 1 percent, they are relatively numerous; and b) like the 1 percent, they have a lot of disposable income, which politicians love.
On one level, this is an understandable reaction to a threat to personal economic interest. But on another, members of the upper middle class are being played for fools. They are acting as political human shields for the top 1 percent, which claims more of these benefits proportionally speaking and has been raking in essentially all the benefits of economic growth. The upper middle class (let’s define this as the top income quintile, minus the top 1 percent) ought to demand a lot more than it is getting.
To start, let’s get one thing straight. Tax expenditures are indeed government benefits, economically identical to direct government spending. Preferential treatment in the tax code is just another way of jiggering the national economic structure to direct benefits to one group or another.
Not all tax expenditures are equally terrible. According to a CBO analysis, exclusions for health care and pensions are spread relatively equitably across the population, while the Earned Income Tax Credit and Child Tax Credit are major bulwarks against poverty.
However, the big deductions are unfairly skewed. Two-thirds of taxpayers can’t even use the mortgage interest deduction, because you have to itemize your deductions to get it; other countries manage high rates of homeownership without the subsidy. Overall, 1 percenters get 15 percent of the mortgage interest deduction, 30 percent of the state tax deduction, and 38 percent of the charitable contribution deduction.
Preferential tax rates for capital gains and dividends, meanwhile, are even worse. Over two-thirds of the benefits go to 1 percenters. The supposed idea is to incentivize investment and thus economic growth, but there is zero evidence this actually happens. Close analysis of the Bush administration’s cut on dividend taxes finds that it did not change anything except payouts to shareholders. Longer-term studies on capital gains tax rates finds no relationship to investment or broader economic growth. The major effect is a booming industry in legal chicanery allowing people to reclassify regular income as capital gains.
Meanwhile, over the last generation, 1 percenters have been capturing the vast bulk of economic growth, a trend that is only getting worse. Indeed, according to a new analysis at the Economic Policy Institute by Mark Price and Estelle Sommeiller, from 2009 to 2012 1 percenters literally received more than all the income growth. Because the incomes of the 99 percent fell on average, 1 percenters got 105.5 percent of real income growth. Policies that benefit the very top over everyone else are clearly to blame.
Clearly, that’s no good for anyone who isn’t in the 1 percent, including the merely affluent. But with the middle class lacking much punching power, and the poor largely ignored by everyone, the upper middle class really ought to be asking for more than the preservation of their existing government benefits. At the very least, the upper middle class could demand a cut of economic growth.
And if the upper middle class were willing to ally with the bottom and the middle, there’s reason to think it would be able to keep the structure of its current benefits (that is to say, access to college instead of merely some money to pay for it) while cutting everyone in on economic growth. Taxes might go up somewhat, but that would likely be compensated by better wages and universal benefits.
On the other hand, if the upper middle class can manage nothing but a hysterical defense of its own welfare handouts, and the American system keeps brutalizing the bottom half of the income ladder, a genuine mass movement could appear, as it has in the past. Such movements are not likely to be especially concerned with the upper middle class.
By: Ryan Cooper, The Week, February 2, 2015
“Inequality Is Natural”: The Big, Long, 30-Year Conservative Lie
First came Occupy Wall Street, and its pitch-perfect slogan on inequality: “We are the 99 percent.” After that movement fizzled, Thomas Piketty, the handsomely ruffled French professor, released a 685-page book explaining that we really were living in a new Gilded Age in which the wealth gap was as wide as it had ever been. Finally, in June, one of the plutocrats sitting atop the piles of money he made in the digital revolution, Nick Hanauer, wrote an article in Politico magazine—it’s the most-shared story ever on Politico’s Facebook page—warning that the pitchforks were coming, and rich people like him should advocate for a healthier middle class and a higher minimum wage.
The debate over inequality is now raging, and most Americans are unhappy about the widening divide between the haves and have-nots. Hanauer has been making the same case for years, drawing heaps of both praise and scorn. Forbes magazine has alternately called Hanauer insane and ignorant. His TED University presentation calling for a $15-minimum wage was left off the organization’s website because it was deemed too “political.” That’s nothing next to Piketty’s detractors, who at their most extreme accused him of twisting his data.
Hanauer and Piketty inspire these broadsides because they are challenging, in a far more aggressive way than plutocrats and economists usually do, the conservative economic orthodoxy that has reigned since at least the 1980s. Under Ronald Reagan, we called it trickle-down economics, the idea that the men who can afford their own private jets—they’re usually men—deserve gobs of money because they provide some special entrepreneurial or innovative talent that drives the American economy.
That’s well known. Far less often discussed is the flipside of this belief: that helping the less well off will dampen the American money-generating engine—that it will hurt growth, because the only thing that inspires the “job creators” to work so hard is the promise of insanely vast financial rewards. Poverty is a necessary evil in this worldview, and helping the less well off creates a “culture of dependency,” which discourages work. “The United States thrives because of a culture of opportunity that encourages work and disdains relying on handouts,” Matthew Spalding of The Heritage Foundation wrote in 2012, neatly summing up the conservative ethos.
Conservatives have dominated discussions of poverty for a generation with arguments like this one. It’s completely wrong. It’s more than that—it’s just a lie, concocted as cover for policies that overwhelmingly favored the rich. But it took the worst economic crisis since the Great Depression for many economists, liberal or not, to finally say publicly what many had long argued: Inequality is bad for the economy.
The latest to say so is the rating agency Standard and Poor’s, not exactly a bastion of lefty propaganda. An S&P report released August 5 says that rising inequality—gaps in both income and wealth—between the very rich and the rest of us is hurting economic growth. The agency downgraded its forecast for the economy in the coming years because of the record level of inequality and the lack of policy changes to correct for it. The report’s authors argue against the notion that caring about equality necessarily involves a trade-off with “efficiency”—that is, a well-functioning economy.
To be sure, they’re not making a case for a massive government intervention to help low-income Americans. They discuss the benefits of current policy proposals—like raising the federal minimum wage to $10.10 per hour—with the caveats that such changes could have potential negative consequences—like dampening job growth. (Most economists agree that such a small hike wouldn’t have that impact.)
At its core, though, the S&P report does argue that pulling people out of poverty and closing the gap between the 1 percent and the 99 percent will increase economic growth. The authors argue for some redistributive policies, like increased financial aid for post-secondary education. “The challenge now is to find a path toward more sustainable growth, an essential part of which, in our view, is pulling more Americans out of poverty and bolstering the purchasing power of the middle class,” the authors write. “A rising tide lifts all boats…but a lifeboat carrying a few, surrounded by many treading water, risks capsizing.”
It’s an important moment for such a debate. The Great Recession was a great equalizer, a crisis in which many in the middle class, and even upper-middle class, fell all the way to the bottom and relied on the government safety net. They learned what anyone who cared to look at the data already knew: The vast majority of people relying on government benefits are suffering a temporary setback that they will recover from, as long as they have a helping hand. The holes in the safety net also became more apparent. Even Paul Ryan, the Republican congressman from Wisconsin who has set his blue eyes on higher office, adequately diagnosed many of the problems with anti-poverty programs when he introduced a new plan last month. (Whether he would actually want to pay for the changes he calls for is debatable.)
Closing the gap by lifting low-income families out of poverty could do more to help the economy than any number of tax credits for “job creators” might, which is what Hanauer argued in Politico. And the S&P report puts more support in his corner.
On the question of what to do, there is widespread agreement on boosting educational attainment and increasing salaries at the bottom end. Policymakers have had a lot of time to think about how to help the middle class, since real wages began declining in the mid-1970s. Many of the problems of inequality have policy solutions ready to go, spelled out in a white paper stuffed in someone’s desk drawer. Why has it taken so long to think about addressing it? Was the political might of the right so overwhelming that they couldn’t speak up until people like Hanauer saw, as he warned in his essay, that the pitchforks would be coming for them?
By: Monica Potts, The Daily Beast, August 8, 2014
“Inequality Is A Drag”: There’s No Evidence That Making The Rich Richer Enriches The Nation
For more than three decades, almost everyone who matters in American politics has agreed that higher taxes on the rich and increased aid to the poor have hurt economic growth.
Liberals have generally viewed this as a trade-off worth making, arguing that it’s worth accepting some price in the form of lower G.D.P. to help fellow citizens in need. Conservatives, on the other hand, have advocated trickle-down economics, insisting that the best policy is to cut taxes on the rich, slash aid to the poor and count on a rising tide to raise all boats.
But there’s now growing evidence for a new view — namely, that the whole premise of this debate is wrong, that there isn’t actually any trade-off between equity and inefficiency. Why? It’s true that market economies need a certain amount of inequality to function. But American inequality has become so extreme that it’s inflicting a lot of economic damage. And this, in turn, implies that redistribution — that is, taxing the rich and helping the poor — may well raise, not lower, the economy’s growth rate.
You might be tempted to dismiss this notion as wishful thinking, a sort of liberal equivalent of the right-wing fantasy that cutting taxes on the rich actually increases revenue. In fact, however, there is solid evidence, coming from places like the International Monetary Fund, that high inequality is a drag on growth, and that redistribution can be good for the economy.
Earlier this week, the new view about inequality and growth got a boost from Standard & Poor’s, the rating agency, which put out a report supporting the view that high inequality is a drag on growth. The agency was summarizing other people’s work, not doing research of its own, and you don’t need to take its judgment as gospel (remember its ludicrous downgrade of United States debt). What S.& P.’s imprimatur shows, however, is just how mainstream the new view of inequality has become. There is, at this point, no reason to believe that comforting the comfortable and afflicting the afflicted is good for growth, and good reason to believe the opposite.
Specifically, if you look systematically at the international evidence on inequality, redistribution, and growth — which is what researchers at the I.M.F. did — you find that lower levels of inequality are associated with faster, not slower, growth. Furthermore, income redistribution at the levels typical of advanced countries (with the United States doing much less than average) is “robustly associated with higher and more durable growth.” That is, there’s no evidence that making the rich richer enriches the nation as a whole, but there’s strong evidence of benefits from making the poor less poor.
But how is that possible? Doesn’t taxing the rich and helping the poor reduce the incentive to make money? Well, yes, but incentives aren’t the only thing that matters for economic growth. Opportunity is also crucial. And extreme inequality deprives many people of the opportunity to fulfill their potential.
Think about it. Do talented children in low-income American families have the same chance to make use of their talent — to get the right education, to pursue the right career path — as those born higher up the ladder? Of course not. Moreover, this isn’t just unfair, it’s expensive. Extreme inequality means a waste of human resources.
And government programs that reduce inequality can make the nation as a whole richer, by reducing that waste.
Consider, for example, what we know about food stamps, perennially targeted by conservatives who claim that they reduce the incentive to work. The historical evidence does indeed suggest that making food stamps available somewhat reduces work effort, especially by single mothers. But it also suggests that Americans who had access to food stamps when they were children grew up to be healthier and more productive than those who didn’t, which means that they made a bigger economic contribution. The purpose of the food stamp program was to reduce misery, but it’s a good guess that the program was also good for American economic growth.
The same thing, I’d argue, will end up being true of Obamacare. Subsidized insurance will induce some people to reduce the number of hours they work, but it will also mean higher productivity from Americans who are finally getting the health care they need, not to mention making better use of their skills because they can change jobs without the fear of losing coverage. Over all, health reform will probably make us richer as well as more secure.
Will the new view of inequality change our political debate? It should. Being nice to the wealthy and cruel to the poor is not, it turns out, the key to economic growth. On the contrary, making our economy fairer would also make it richer. Goodbye, trickle-down; hello, trickle-up.
By: Paul Krugman, Op-Ed Columnist, The New York Times, August 7, 2014
“Now We Know”: Economic Inequality Is A Malady — Not A Cure
It has been a long, long time since Americans accepted the advice of a French intellectual about anything important, let alone the future of democracy and the economy. But the furor over Thomas Piketty’s stunning bestseller, Capital in the 21st Century – and especially the outraged reaction from the Republican right – suggests that this fresh import from la belle France has struck an exposed nerve.
What Monsieur Piketty proves, with his massive data set and complex analytical tools, is something that many of us – including Pope Francis — have understood both intuitively and intellectually: namely that human society, both here and globally, has long been grossly inequitable and is steadily becoming more so, to our moral detriment.
What Piketty strongly suggests is that the structures of capitalism not only regenerate worsening inequality, but now drive us toward a system of economic peonage and political autocracy.
The underlying equation he derives is simple enough: r > g, meaning the return on capital (property, stock, and other forms of ownership) is consistently higher than economic growth. How much higher? Since the early 1800s, financiers and landowners have enjoyed returns of roughly five percent annually, while economic growth benefiting everyone has lagged, averaging closer to 1 or 2 percent. This formula has held fairly steady across time and space. While other respectable economists may dispute his methodology and even his conclusions, they cannot dismiss his conclusions.
As a work of history and social science, Capital in the 21st Century outlines a fundamental issue while providing little in policy terms. Piketty mildly suggests that nations might someday cooperate in a progressive and global taxation of capital gains, with shared proceeds. There isn’t much reason to hope for any such happy solution. But then it isn’t up to Piketty to solve the problem.
He has already done America and the world a profound service by demolishing the enormous shibboleth that has long stood as an obstacle to almost every attempt at economic reform, from raising the minimum wage to restoring progressive taxation: Only if we coddle the very wealthy – and protect them from taxation and regulation — can we hope to restore growth, employment, and prosperity. Only if we meekly accept the revolting displays of power and consumption by the very fortunate few can we expect them to bestow any blessing, however small, on the toiling many.
If you read Piketty – whose translation into English by Arthur Goldhammer makes macro-economics a literary pleasure – you will quickly realize that we’ve been told a big lie about this most basic social bargain. The stratospheric accumulation of rewards accruing to the top 0.01 percent of owners, at the expense of society and everyone else, is not only unnecessary to promote growth; in fact, that unfair dispensation retards growth.
Rather than argue honestly with Piketty’s findings, right-wing responses have varied from old-fashioned redbaiting, although he is plainly no communist, to juvenile misrepresentation of a book that at least one critic admits she didn’t bother to read! The boneheaded Tea Party reaction is to accuse him of demanding that sanitation workers earn the same salary as surgeons – although he explicitly agrees that a degree of inequality is important to encourage innovation, enterprise, and industry.
“I have no interest in denouncing inequality or capitalism per se,” he notes early in the book. But then the wing-nuts and trolls attacking him have no interest in debate, let alone knowledge. They hate social science just as much as they hate plain old science.
For the rest of us, Piketty’s opus poses an epochal challenge. Confronted with the truth about exacerbating inequality and the costs imposed on democratic society, what are we going to do about it? History provides a few clues if not a blueprint. The highest level of economic equality and social strength in the West arrived during the postwar era – back when unions were strong, taxes restrained the rich, minimum wages were higher, and redistribution was not a dirty word.
It will be the task of the next generation to restore decency and democracy – and save the planet — against the ferocious political resistance of the super-rich. They can now begin by discarding the ideological illusions that Piketty has so neatly dispatched.
By: Joe Conason, Editor in Chief of NationalMemo.com; Cross-Posted in TruthDig, The National Memo, April 25, 2014
“Liberty, Equality, Efficiency”: What’s Good For The “One-Percent” Isn’t Good For America
Most people, if pressed on the subject, would probably agree that extreme income inequality is a bad thing, although a fair number of conservatives believe that the whole subject of income distribution should be banned from public discourse. (Rick Santorum, the former senator and presidential candidate, wants to ban the term “middle class,” which he says is “class-envy, leftist language.” Who knew?) But what can be done about it?
The standard answer in American politics is, “Not much.” Almost 40 years ago Arthur Okun, chief economic adviser to President Lyndon Johnson, published a classic book titled “Equality and Efficiency: The Big Tradeoff,” arguing that redistributing income from the rich to the poor takes a toll on economic growth. Okun’s book set the terms for almost all the debate that followed: liberals might argue that the efficiency costs of redistribution were small, while conservatives argued that they were large, but everybody knew that doing anything to reduce inequality would have at least some negative impact on G.D.P.
But it appears that what everyone knew isn’t true. Taking action to reduce the extreme inequality of 21st-century America would probably increase, not reduce, economic growth.
Let’s start with the evidence.
It’s widely known that income inequality varies a great deal among advanced countries. In particular, disposable income in the United States and Britain is much more unequally distributed than it is in France, Germany or Scandinavia. It’s less well known that this difference is primarily the result of government policies. Data assembled by the Luxembourg Income Study (with which I will be associated starting this summer) show that primary income — income from wages, salaries, assets, and so on — is very unequally distributed in almost all countries. But taxes and transfers (aid in cash or kind) reduce this underlying inequality to varying degrees: some but not a lot in America, much more in many other countries.
So does reducing inequality through redistribution hurt economic growth? Not according to two landmark studies by economists at the International Monetary Fund, which is hardly a leftist organization. The first study looked at the historical relationship between inequality and growth, and found that nations with relatively low income inequality do better at achieving sustained economic growth as opposed to occasional “spurts.” The second, released last month, looked directly at the effect of income redistribution, and found that “redistribution appears generally benign in terms of its impact on growth.”
In short, Okun’s big trade-off doesn’t seem to be a trade-off at all. Nobody is proposing that we try to be Cuba, but moving American policies part of the way toward European norms would probably increase, not reduce, economic efficiency.
At this point someone is sure to say, “But doesn’t the crisis in Europe show the destructive effects of the welfare state?” No, it doesn’t. Europe is paying a heavy price for creating monetary union without political union. But within the euro area, countries doing a lot of redistribution have, if anything, weathered the crisis better than those that do less.
But how can the effects of redistribution on growth be benign? Doesn’t generous aid to the poor reduce their incentive to work? Don’t taxes on the rich reduce their incentive to get even richer? Yes and yes — but incentives aren’t the only things that matter. Resources matter too — and in a highly unequal society, many people don’t have them.
Think, in particular, about the ever-popular slogan that we should seek equality of opportunity, not equality of outcomes. That may sound good to people with no idea what life is like for tens of millions of Americans; but for those with any reality sense, it’s a cruel joke. Almost 40 percent of American children live in poverty or near-poverty. Do you really think they have the same access to education and jobs as the children of the affluent?
In fact, low-income children are much less likely to complete college than their affluent counterparts, with the gap widening rapidly. And this isn’t just bad for those unlucky enough to be born to the wrong parents; it represents a huge and growing waste of human potential — a waste that surely acts as a powerful if invisible drag on economic growth.
Now, I don’t want to claim that addressing income inequality would help everyone. The very affluent would lose more from higher taxes than they gained from better economic growth. But it’s pretty clear that taking on inequality would be good, not just for the poor, but for the middle class (sorry, Senator Santorum).
In short, what’s good for the 1 percent isn’t good for America. And we don’t have to keep living in a new Gilded Age if we don’t want to.
By: Paul Krugman, Op-Ed Columnist, The New York Times, March 9, 2014
Share This Blog
Unknown Feed- An error has occurred; the feed is probably down. Try again later.
mykeystrokes.com 