Income inequality: The other side of the gap


The Metro West Daily News
By: Donald Chauls
February 10, 2014

Inequality and the gap in incomes between rich and poor are finally on the nation's agenda. It's about time: this gap has been growing for more than three decades. It is harmful to our nation - economically, socially, and politically. Both Republicans and Democrats realize this and have expressed concern to reduce the income gap. Their very different ideas to solve this problem address improvements in educational opportunities at all levels, job training, changes to the health care system, creation of new jobs, assisting those who are unemployed, the minimum wage, providing food for those in need, and other factors. Most of these solutions require additional funds - in some cases, a lot more money.But Republican and Democratic suggestions to close the income gap have one thing in common: all of their proposed solutions involve helping the poor and lower middle class - i.e., raising the bottom of the income distribution. But the basic idea of overcoming a gap suggests not only that the bottom is too low, but also that the top is too high.

Reducing the income gap requires movement in both directions - making the poor richer and making at least some of the rich poorer. Closing the gap with such a two-way approach is easier economically as well as beneficial politically and socially.

Republicans argue that rich people are the job creators and, therefore, that their taxes should be kept low. Undoubtedly, some wealthy people are, in fact, job creators, and it would be undesirable to make it more difficult for them to do their thing. But there are many wealthy people who essentially move money around, producing their income without influencing jobs in any way. This was certainly true, for example, of most of the people who became wealthier by bundling mortgages and creating the housing bubble that began the economic crash of 2008.So some of the rich are job creators; others are not. To obtain the additional revenue needed to raise incomes of the poor and middle class, the logical approach might be to raise taxes only on those who are rich and not job creators.

Unfortunately, it would be enormously difficult to establish a taxation system that could do this fairly. But there is at least a partial alternative solution: First, we need to make a distinction between people who are rich and people who are extremely rich. The taxation system ought to encourage people to become rich, since that initial process of accumulating wealth is usually beneficial to the economy. But, as one gets richer and richer, that tends to change. Anyone whose net worth is over a billion dollars or whose annual income (from all sources) tops $$50 million is, by anyone's definition, extremely rich. (Although these levels - $1 billion and $50 million - are established arbitrarily, they are reasonable levels to start this discussion.) Most of these people are no longer job creators. They are far beyond the days where they may have become rich by turning an idea into producing something that created new jobs. Most of their income now comes from playing around with money.

These people have so much money that they can give away a few million here, a few million there without it having any influence whatsoever on their personal expenditures or life style. They have so much money that their life never intersects with that of the rest of us; they do not know what it means to take a bus, to shop for groceries, to send their children to a public school, to worry about the costs of staying healthy. They have so much money that they have the power to control politicians and to influence legislation in their favor - even if such legislation is detrimental to most folks and increases the income gap. These are the people - an extremely tiny proportion of the populace - who should be contributing much more to the reduction of the income gap. With a few exceptions, they will not do so willingly. But reducing their wealth provides the funds needed to improve the lives of those with less. Reducing their wealth makes politics fairer. Reducing their wealth has no negative effect on job creation.

Reducing their wealth enables them to learn how the rest of us live. For starters, for extremely rich people (but not for 'ordinary' rich people), we ought to return to the personal income tax rates of the 1950s and '60s (when, by the way, our economy flourished). Although even then there were loopholes that enabled many wealthy people to pay less than the rate suggested, the income gap was much smaller than it is today. Reducing that gap by increasing the personal income tax rates on the very wealthiest people - to at least 90 percent - should be one of our government's highest priorities.

About this Entry

This page contains a single entry by CFED published on February 11, 2014 2:09 PM.

A Minimum Wage That Will Work was the previous entry in this blog.

Federal Framework Needed to Expand Credit Access for Americans is the next entry in this blog.

Find recent content on the main index or look in the archives to find all content.