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.