The Hankyoreh, October 15, 2017
Donald Trump and the Republicans are proposing another round of tax cuts which will go overwhelmingly to the country’s richest people. According to projections from the non-partisan Tax Policy Center, almost 80 percent of the benefits will go to the richest one percent of taxpayers.
Fortunately there is considerable pushback. Most Democrats and even a few Republicans are willing to say that giving more money to the big winners in the U.S. economy over the last four decades may not be a good idea. Many Washington based policy groups, supported by foundations and rich individuals, are also lining up against the tax cut.
While the battle over this cut plan is an important fight, it is striking to see the difference between efforts to prevent more inequality through the tax code and the lack of interest in the policies that affect before-tax income. Even though an increase in before-tax inequality has been overwhelmingly responsible for the rise in inequality over the last four decades, the policies that caused this increase attract far less attention than taxation from liberal politicians and policy groups.
We have a great example of this disconnect in the lack of attention over to the Federal Reserve Board’s monetary policy and the battle over the new chair. Fed policy draws almost no attention, even though its decisions on interest rates have a direct impact on the employment of prospects of millions of workers and the pay of tens of millions.
The decision by the Fed to allow the unemployment rate to continue to fall over the last two years, rather than raising rates to slow growth and job creation, has increased the income of low and moderate income households by tens of billions of dollars. Yet the same people who would scream about a cut in benefits half of this size have almost totally ignored the Fed’s decisions on interest rates and largely stayed out of the battle over the Fed chair.
The ability of workers to join unions and the rules constraining the range of union power has an enormous impact on the living standards of low and middle class workers. Yet, measures that would have a large impact in these areas pass under the radar of many policy groups supposed committed to helping low and moderate income families.
In another area, the financial industry has been a huge winner over the last four decades. It has exploded in size relative to the rest of the economy. The sector is where many of the nation’s richest people get their income at the expense of the rest of the country. Yet policy proposals aimed at reducing the drain this sector imposes on the economy get little interest in policy circles.
For example, a financial transactions tax could raise over $100 billion a year or 0.6 percent of GDP. The revenue from this tax would come almost completely out of pockets of the financial industry since it would hugely reduce financial transactions. The money people pay in the tax would be offset by the money they saved from making fewer trades. The money saved from fewer trades is money directly out of the pockets of the financial industry, but it makes no difference to the average investor whether they pay money in trading fees or as taxes to the government. Nonetheless, this tax rarely gets mentioned in policy debates, even among liberals who are ostensible committed to reducing inequality.
Another rarely mentioned topic in liberal policy circles is corporate governance. The United States has a broken system of corporate governance in which the CEOs and other top management get to largely pick the boards that are supposed to oversee them and set their pay. It is almost impossible for shareholders to unseat board members supported by management.
As a result, CEO pay has skyrocketed so that it is now 200 to 300 times as much as the pay of ordinary workers. The explosion of pay for CEOs leads to greater inequality in other sectors as well, as top executives at hospitals, universities, and even private charities now frequently earn well over $1 million a year. Here also there is almost no interest in reform.
Finally, patent and copyright monopolies, which made Bill Gates the richest person in the world, are almost never a topic of debate in liberal policy circles. These monopolies are explicitly intended to give more income to their holders at the expense of the rest of us. The idea is these monopolies create incentives which provide a boost to growth sufficient to offset the higher cost we pay for software, prescription drugs, and other protected items.
This is a classic story of growth versus inequality trade-off, yet we literally never hear any debate as to whether the boost to growth we have seen from longer and stronger patent and copyright protection has been worth the price in terms of increased inequality. There is good reason to question whether the strengthening of these protections over the last four decades has even led to any boost in growth, but the growth and inequality trade-off should be a major topic of debate. Instead it is almost completely ignored even by the liberals who are supposedly concerned about inequality.
Anyone seriously concerned about inequality would focus on the factors that have led to the enormous growth in before-tax inequality. (This is the topic of my [free] book Rigged: How Globalization and the Rules of the Modern Economy Have Been Structured to Make the Rich Richer.) It is good to see the politicians and policy groups organizing to prevent tax breaks that will make the problem of inequality even worse, but it would be nice if some of them were also prepared to address its cause.