Political Economy of Social Issues Session 1: Why has income and wealth inequality increased so dramatically since the late 1970s?

Transcription

1 Political Economy of Social Issues Session 1: Why has income and wealth inequality increased so dramatically since the late 1970s? The data: U.S. Income Share of Top 1% and Top 0.1% Current boundaries Top 1%: income above $394,000 Top 0.1%: income above $1.9 million Median household income: $51,393 top 0.1% share of wealth Racial dimensions of the wealth gap

2 How did this happen? Brief overview since 1870s First Gilded Age, 1870s-1929 Growth of railroads, banking, and heavy production such as steel à robber barons then the Great Depression, Caused in part by inequality World War II Massive government spending Shared Prosperity, Post World War II golden age of US capitalism Policies reduced concentration of wealth and expanded middle class Programs to expand the middle class programs for low fixed rate mortgages GI bill Interstate highway system Boosting labor power (somewhat) National Labor Relations Act (1935) Also Taft-Hartley Act (1947) Result: Unionization rate rose through late 1950s Policies reduced the concentration of wealth and corporate power More progressive income and estate (inheritance) taxes Oversight and taxing of corporations

3 Income taxes Estate (inheritance) taxes: top rate Tax rate on income from wealth (capital gains)

4 Effective corporate profit tax rate was (relatively) higher Pulling Apart, 1979 present two trends masked the growing problems from the 1970s through 2008 Increase of women in the labor force Easy access to credit Causes of the increase in inequality Began late 1970s Picked up steam 1981 Limiting the power of labor Anti labor rulings by NLRB (National Labor Relations Board) 1981: Reagan fired Air Traffic Controllers A result: Unionization rate fell Bright spot is public sector unionization Union density (percent of workers who are members of labor unions)

5 Deregulation Argument that regulations were stifling business innovation, investment, and job creation Fewer inspections and lower fines by OSHA and the EPA Financial sector deregulation 1982 Thrifts deregulated 1999 Glass- Steagall Act ended 2000 Commodities, and derivatives and futures deregulated modernized Supply-side tax cuts for corporations and the wealthy Theory: cut taxes on corporations and the rich à they will increase investment à And create more jobs Top income tax rate cut Lower estate (inheritance) taxes Lower taxes on income from wealth (capital gains) 20% rate for long term capital gains in top tax bracket since 2014 The top 1% receives 80% of capital gains income Cuts in Corporate taxes Tax loopholes, Offshore tax havens, Lower rates What has been done with corporate profits? Buy-outs of other companies, stock repurchasing Many of the jobs created have been low-wage in developing countries Higher CEO pay

6 Political Problems caused by increased inequality Increased political influence by the wealthy Campaign contributions Personal relationships with elected officials Armies of lobbyists in Congress 2010 Citizens United Supreme Court decision Ruled that corporations are people and therefore can t curtail their freedom of speech Molding public opinion Donations to tax-exempt foundations that support their economic interests using their influence in the media to skew the conversation Tax revenues decreased at all levels of government Used as an argument to cut social programs And deterioration of public facilities roads, bridges, utilities, and schools Inequality erodes social and economic mobility Threatens meritocracy US has lower intergenerational economic mobility than Canada or European countries Economic problems with inequality Inequality undermines economic growth More equal societies have stronger rates of growth, longer economic expansions, and recover more quickly from recessions Share of income going to middle class/workers decreased

7 While the tax burden increased But there is a problem with supply-side economics Investment is based on expected profits Lower income à less demand for goods and services The$Economy$ Firms Labor Wages $ Consumer Goods and Services Households

8 Policies for addressing income and wealth inequality Conservatives: good proxy is GOP Budget Proposal Balances the budget primarily by cutting social and regulatory programs More tax cuts for corporations and the wealthy Reduce the corporate profit tax rate to 25% Income taxes: simplify the tax code Repeal the Alternative Minimum Tax Cut top rate to 25% From progressives and liberals: A good proxy is the Congressional Progressive Caucus Budget Proposal Regulate the financial sector Implement Dodd Frank Wall Street Reform and Consumer Protection Act Use anti-trust laws to break up large banks and cap their size Corporate profits taxes End corporate tax bias towards moving jobs and profits overseas Reduce deductions for corporate jets, meals, and entertainment Eliminate corporate welfare for oil, gas, and coal companies financial transactions tax of 0.5% on sales of financial instruments (e.g. stocks, bonds) Tax Equity Allow Bush tax cuts to expire for families earning more than $250,000 Add higher rates for households with incomes over $1 million Tax capital gains and dividends as ordinary income 30% minimum tax for millionaires (Buffet rule) Progressive estate tax