Friday, August 29, 2008

Limits of Tax-Based Redistribution

Washington Post columnist Steven Pearlstein makes some good points about inequality, and Barack Obama's plans to chip away at it through the tax code, by lowering taxes for middle- and lower-income people while raising them at the top. Pearlstein writes:
Two things to note about the Obama tax plan:

First, there is little evidence that the proposed tax increases on high-income households would seriously harm the economy. The effective average tax rates at the top would be about the same as they were in the mid-'90s, which if memory serves were boom years for investment and entrepreneurship, boom years for the U.S. economy, and boom years for federal revenue.

Second, even with the Obama tax plan, the distribution of after-tax income would still be roughly where it was only four years ago.

The reality is that the market's tilt toward unequal outcomes is now so strong that you can't just rely on a progressive tax code to counteract its effects...


Denis Drew said...

Globalization and immigration and lack of education supposedly bounced 12.5% of overall income out of the pockets of bottom 90 percentile American (not European) incomes and into those of the upper 3 percentile, but -- note well -- only under market conditions of virtually zero opposition from and even relatively little awareness by the unlucky 90 percentile.

With 90 percent of the vote under its sleepy power, American labor could legislate a bounce back from a 12.5% income shift (fairly or unfairly!) anytime it wants to -- a legislative force multiplier!
First, double the minimum wage over three years (a dollar every six months?)...
...with inflation guarantees for under $100,000 incomes.

Doubling the minimum wage could shovel an average of 50% pay raises into the pockets of America’s below 50 percentile incomes ($13/hr being 35 percentile income) -- at an easily computed 3% direct price increases with perhaps an additional 3% after other wages are pushed up -- a minimum wage force multiplier!

Second, legislatively introduce French-Canadian style ("lite") sector-wide labor agreements into the US labor market (airline and supermarket employees would kill for sector-wide -- just mention the world-wide practice out loud, and make a killer issue for the Dems)...
...and legislatively mandate automatic union certification -- and re-certification -- elections periodically (every four years?) at every work place (there should be no more a requirement to struggle for economic elections than for political elections -- periodic re-certification could clean up the worst complaints against unions: entrenched, complacent or even corrupt leaderships).

Top 10 percentile incomes enjoy 40 percent of all income -- plenty of headroom to gobble back those percentage points of the 12.5% lost to mid 50-90 percentile incomes -- a collective bargaining force multiplier!

Third, (at least temporarily) hike marginal tax rates enough (75% over $500,000, $1,000,000?) to reduce long-term over-exaggerated pay expectations on the part of ball players, news anchors, CEOs and other "inefficient" income absorbers. Folks making 2500% more than folks doing the same work 25-35 years ago wont bounce back very much through 12.5-25% price increases -- erode a force multiplier!
My big question: Will Obama be another 1960 JFK who claimed not to care if the minimum wage were $1/hr or $1.25/hr; will Obama care if the minimum wage is $10/hr or $12.50/hr -- or on its way to $15.00/hr? Or will Obama be more like -- nobody could be "another" -- 1968 LBJ who steamrollered $10/hr (in 2008 buying power) through Congress at half of 2008’s average income?

1960s Michael Harrington defined poverty as not enjoying what your society could [easily] provide you if it had the will. Double the average income later, inserting the word "easily" into his definition makes it a better fit for what should be the richer 2000s: globalization, automation, lacking education or not.

Simple, long overdue upgrades in American (not European) labor law could soon make "Take it easy; but take it" labor’s new refrain.

Bill C said...

Hmmm.... I don't think this country is there politically, and, for better or worse, I doubt it will get there. But hopefully we will see a strengthening of labor as a Galbraithian "countervailing power", though I can't imagine centralized bargaining in the US. Also, the Clinton years (thanks, Bill) give cover for raising top rates back to what they were in the 1990s, since the economy, including rich people, did well (only one data point, for sure, and we don't know the counterfactual). But I wonder if even a Dem. congress and progressive administration would/could push much beyond that.

Obama would push in the direction you suggest. Here's what Obama's website says under the heading of "labor": Obama will strengthen the ability of workers to organize unions. He will fight for passage of the Employee Free Choice Act. Obama will ensure that his labor appointees support workers' rights and will work to ban the permanent replacement of striking workers. Obama will also increase the minimum wage and index it to inflation to ensure it rises every year.

* Ensure Freedom to Unionize: Obama believes that workers should have the freedom to choose whether to join a union without harassment or intimidation from their employers. Obama cosponsored and is strong advocate for the Employee Free Choice Act, a bipartisan effort to assure that workers can exercise their right to organize. He will continue to fight for EFCA's passage and sign it into law.
* Fight Attacks on Workers' Right to Organize: Obama has fought the Bush National Labor Relations Board (NLRB) efforts to strip workers of their right to organize. He is a cosponsor of legislation to overturn the NLRB's "Kentucky River" decisions classifying hundreds of thousands of nurses, construction, and professional workers as "supervisors" who are not protected by federal labor laws.
* Protect Striking Workers: Obama supports the right of workers to bargain collectively and strike if necessary. He will work to ban the permanent replacement of striking workers, so workers can stand up for themselves without worrying about losing their livelihoods.
* Raise the Minimum Wage: Barack Obama will raise the minimum wage, index it to inflation and increase the Earned Income Tax Credit to make sure that full-time workers earn a living wage that allows them to raise their families and pay for basic needs.