University of Oklahoma College of Law From the SelectedWorks of Jonathan B. Forman April 29, 2011 Law and Economic Justice JONATHAN B FORMAN, University of Oklahoma Available at: https://works.bepress.com/jonathan_forman/170/
Law and Economic Justice Jon Forman Alfred P. Murrah Professor of Law University of Oklahoma Central Oklahoma Association of Legal Assistants Oklahoma City, Oklahoma April 29, 2011 1
Percent Share of Household Income 60 50 40 30 20 10 0 Poorest 20% Middle 20% Richest 20% Free market After taxes & transfers 2
U.S.: Share of Household Income & Gini Index, 2005 Market income Disposable income Quintiles Lowest 1.50 4.42 Second 7.26 9.86 Middle 14.00 15.33 Fourth 23.41 23.11 Highest 53.83 47.28 Gini Index 0.493 0.418 3
Education Wage Premium 20 Facts About U.S. Inequality that Everyone Should Know, http://stanford.edu/group/scspi/cgi-bin/facts.php. 4
Job Losses 20 Facts About U.S. Inequality that Everyone Should Know, http://stanford.edu/group/scspi/cgi-bin/facts.php. 5
Productivity and Real Income 20 Facts About U.S. Inequality that Everyone Should Know, http://stanford.edu/group/scspi/cgi-bin/facts.php. 6
CEO Pay 20 Facts About U.S. Inequality that Everyone Should Know, http://stanford.edu/group/scspi/cgi-bin/facts.php. 7
Office of Management and the Budget, A New Era of Responsibility: Renewing America s Promise (2009). 8
Deregulation of the Labor Market 20 Facts About U.S. Inequality that Everyone Should Know, http://stanford.edu/group/scspi/cgi-bin/facts.php. 9
Intergenerational Income Mobility 20 Facts About U.S. Inequality that Everyone Should Know, http://stanford.edu/group/scspi/cgi-bin/facts.php. 10
Rising Poverty U.S. Census Bureau, Income, Poverty, and Health Insurance Coverage in the United States: 2009, (Current Population Report No. P60-238, September 2010), http://www.census.gov. 11
Number Figure 11. Persons in Jail and Prison 1980-2008 2,500,000 2,000,000 1,500,000 1,000,000 500,000 0 1980 1985 1990 1995 2000 2005 Year 12
Congressional Budget Office, Trends in Federal Tax Revenues and Rates (December 2, 2010), at 24, http://finance.senate.gov/imo/media/doc/120210detest.pdf. 13
Ratio Rising Inequality 30 25 Ratio of Average Household Income of the Top 5 and 20 Percent of Households to the Average Household Income of the Bottom 20 Percent of Households, 1970-2009 Top 20%/bottom 20% Top 5%/bottom 20% 22.7 24.6 26.1 25.5 20 15 10 10.6 16.2 14.5 14.7 9.8 10.2 11.3 17.0 11.9 19.1 13.2 13.8 14.8 14.8 5 0 1970 1975 1980 1985 1990 1995 2000 2005 2009 Source: U.S. Census Bureau, table IE-3, http://www.census.gov/hhes/www/income/data/historical/inequality/index.html. Year 14
Average Annual Earnings of Full-time Workers, 2008 Doctors (Family & GP) $161,490 Lawyers 124,750 Economists 90,830 Nurses (RN) 65,130 Police 52,810 Auto mechanics 38,967 Secretaries 29,990 Garbage collectors 37,540 Orderlies 24,620 Waiters and waitresses 19,580 15
Percent of workers Figure 6. Distribution of Workers by Earnings Category, 2004 12 11 10 9 8 7 6 5 4 3 2 1 0 < 0 15 30 45 60 75 90 105 120 135 150 165 180 195 210 225 240 >250 Earnings (thousands of dollars) 16
Dollars per hour 2003$) Figure 7. Wages by Percentile, 1979-2003 $40 $35 $30 $25 $20 $15 $10 $5 $0 1979 1985 1991 1997 2003 Year 95th percentile 90th percentile 80th percentile 50th percentile 20th percentile 10th percentile 17
Percent Figure 8. The Size Distribution of Wealth, 2004: Percentage Share of Wealth Held by... 100 90 84.7 80 70 60 50 40 34.3 30 24.6 20 10 0 12.3 13.4 11.3 3.8 0.2 Top 1% Next 4% Next 5% Next 10% Top 20% 2nd 20%3rd 20% Bottom 40% 18
Percent 60 Figure 10. Share of Household Income 50 40 30 20 10 0 Poorest 20% Middle 20% Richest 20% Egalitarian Free market After taxes & transfers Just? 19
Percent of household income 100% How Taxes and Transfers Improved Equity, 2004 80% 60% Line of perfect equality 40% Lorenz curve (income before taxes and transfers) Lorenz curve (income after taxes and transfers) 20% 0% 0% 20% 40% 60% 80% 100% Percent of households 20
Income Inequality Gini Interdecile Interdecile ratio coefficient ratio P90/P10 P50/P10 Level Rank Level Rank Level Rank Australia 0.30 16 3.95 15 2.09 18 Canada 0.32 18 4.12 17 2.14 20 Mexico 0.47 30 8.53 30 2.86 30 Sweden 0.23 2 2.79 2 1.72 1 United Kingdom 0.34 23 4.21 18 1.99 15 United States 0.38 27 5.91 27 2.69 29 OECD-30 0.31.. 4.16 2.09.. http://dx.doi.org/10.1787/420888675468 21
Inequality and Redistribution Country Gini Before Gini After Poverty Before (50% of median income) Poverty After (50% of median income) Tax % GDP Social Spending %GDP Australia 0.46 0.3 28.6 12.4 30.6 17.1 Canada 0.44 0.32 23.1 12.0 33.3 16.5 Mexico n/a 0.47 21.0 18.4 20.6 7.0 Sweden 0.43 0.23 26.7 5.3 49.1 29.4 United Kingdom 0.46 0.34 26.3 8.3 37.1 21.3 United States 0.46 0.38 26.3 17.1 28.0 15.9 OECD 0.45 0.31 26.4 10.6 35.9 20.5 22
Social Spending & Child Poverty in Selected Countries 23
Joint Committee on Taxation, Present Law and Historical Overview of the Federal Tax System (JCX-1-11), Joint Committee January on 18, Taxation, 2011, www.jct.gov. Present Law and Historical Overview of the Federal Tax System (JCX-1-11), January 18, 2011, at 70, www.jct.gov. 24
Percent paid jointly by employee and employer U.S. Payroll Tax Rates: Selected Years 20 18 16 14 12 10 8 Medicare Social Security 6 4 2 0 1940 1960 1980 2010 Year 25
Tax-to-GDP ratio, 2008 OECD Tax Database, http://www.oecd.org. 26
Earned Income Tax Credit (EITC) Increase New credit percentage for 3 or more qualifying children I.R.C. 32 (ARRA 2002) Temporary increase 2009 & 2010 Computed as 45% of earnings (up from 40%) Maximum credit increased to $5,666 in 2010 Maximum AGI increased to $48,362 in 2010 27
Child Tax Credit $1,000 per qualifying child I.R.C. 24 (ARRA 1003) Temporary expansion of eligibility for refundable credit More lower income families qualify: 2008 threshold amount was = $8,500 2009 and 2010 threshold amount = $3,000 28
Poverty Levels & Net Federal Tax Thresholds, 2010 Unmarried individual Single parent w/ 1 child Married couple w/ 2 children Married couple w/ 3 children 1. Poverty levels $10,830 $14,570 $22,050 $25,790 2. Simple income tax $9,350 $15,700 $26,000 $29,650 threshold (before credits) 3. Income tax $13,395 $32,380 $50,250 $60,567 threshold after credits 4. Employee payroll $0 $0 $0 $0 tax threshold 5. Combined income & payroll tax threshold $9,348 $25,717 $38,635 $43,788 29
Taxes at Poverty Level, 2010 Unmarried individual Single parent w/ 1 child Married couple w/ 2 children Married couple w/ 3 children 1. Poverty levels $10,830 $14,570 $22,050 $25,790 2. Income tax at -$453 -$4,450 -$7,712 -$8,554 poverty level (after credits) 3. Employee Social $829 $1,115 $1,687 $1,973 Security & Medicare tax at poverty level 4. Combined income & $376 -$3,335 -$6,025 -$6,581 payroll tax at poverty level 5. Combined tax as a % of income at poverty level 3.5% -22.9% -27.3% -25.5% 30
Tax Liability Net Federal Tax Liabilities for Selected Households, 2010 $15,000 Unmarried Individual $10,000 Head of Household, 1 Child $5,000 Married Couple, 2 Children $0 Married Couple, 3 Children -$5,000 -$10,000 Income 31
Outlays for the Principal Federal Benefit Programs in the United States (billions of dollars) 2009 actual 2015 estimate Social Security $678 $893 Medicare 425 651 Medicaid 251 336 Unemployment compensation 119 65 Supplemental Security Income 41 52 Earned income tax credit 42 45 Child tax credit 24 26 Making work pay tax credit <1 n/a Food assistance 72 89 Family support 26 25 Housing assistance 10 5 General retirement and disability 8 10 Federal employee retirement and disability 118 141 Veterans benefits and services 49 84 32
Some Specific Recommendations Making Taxes Work Making Welfare Work Modestly Raising the Minimum Wage and indexing it for Inflation A Two-Tiered Social Security System A Restructured Pension System Universal Health Care Move Toward Full Employment 33
Percent 60 Percentage Composition of Federal Receipts by Source: 1940-2005 50 40 30 20 Individual Income Tax Corporation Tax Social Insurance Excise Taxes Other 10 0 1940 1950 1960 1970 1980 1990 2000 Year 34
Tax rate Income Tax Rates, Single Parent with Two Children and Earned Income Only, 2006 60% 50% 40% 30% 20% 10% 0% $0 $50,000 $100,000 $150,000 $200,000 Earned income 35
Tax rate Social Security Tax Rates on Earned Income, 2006 60% 50% 40% 30% 20% 10% 0% $0 $50,000 $100,000 $150,000 $200,000 Earned income 36
Effective tax rate Actual Tax Rate on Single Parents with Earned Income Only, 2006 60% 40% 20% 0% -20% $0 $50,000 $100,000 $150,000 $200,000 Earned income -40% Effective tax rate Linear trend line 37
Average Cumulative Tax Rates Confronting Low-to-Moderate-Income Families ($10k - $40k) 100% 88.6% 80% 60% 58.8% 40% 35.9% 20% 0% Tax Plus Food Stamps & Health Plus TANF, Housing, Child Care 38
Credit Amount t $2,000 per Worker Earned Income Credit, with or without a Phase-out $5,000 $4,000 $3,000 $2,000 $1,000 $0 $0 $20,000 $40,000 $60,000 $80,000 Earned income $2,000 per worker credit $2,000 per worker credit with phase-out 39
How a Comprehensive Tax and Transfer System Would Affect a Single Parent with Two Children Pre-transfer Earnings plus Universal Grants plus Worker Credit less Tax Imposed Equals Aftertax Income 0 $6,000 0 0 $6,000 $5,000 $6,000 $1,000 $1,000 $11,000 $10,000 $6,000 $2,000 $2,000 $16,000 $20,000 $6,000 $2,000 $4,000 $24,000 $30,000 $6,000 $2,000 $6,000 $32,000 $40,000 $6,000 $2,000 $8,000 $40,000 $50,000 $6,000 $2,000 $10,000 $48,000 $100,000 $6,000 $2,000 $27,500 $80,500 $150,000 $6,000 $2,000 $45,000 $113,000 $200,000 $6,000 $2,000 $62,500 $145,500 40
Post-tax, post-transfer income How a Comprehensive Tax and Transfer System Would Affect Single Parents $200,000 $150,000 $100,000 Pre-transfer earnings $50,000 Post-tax, post transfer income $0 $0 $50,000 $100,000 $150,000 $200,000 Earnings 41
Health Coverage 2009 Source of Coverage millions percentage Total population 304.3 100.0 Employment-based coverage 169.7 55.8 Individually Purchased 27.2 8.9 Public 93.2 30.6 Medicare 43.4 14.3 Medicaid 47.8 15.7 Military health care 12.4 4.1 No health insurance 50.7 16.7 42
Summary Government should intervene To encourage work Promote economic justice Tax, spending, and regulatory proposals Increase the size of the economic pie Allow us to divide it more equally 43
About the Author Jonathan Barry Forman ( Jon ) is the Alfred P. Murrah Professor of Law at the University of Oklahoma College of Law; Jon is the author of Making America Work (Washington, DC: Urban Institute Press, 2006); and Jon was the Professor in Residence at the Internal Revenue Service Office of Chief Counsel, Washington, DC, for the 2009-2010 academic year. Jon can be reached at jforman@ou.edu, 405-325-4779, www.law.ou.edu/faculty/forman.shtml. 44