One of the points Noah Smith made in his post that I agree with is that things aren’t working so we should change what we’re doing. But what is it that we’re doing that’s not working? I think it’s:
- I think the Clinton era tax reforms have been a disaster from the standpoint of income inequality and economic growth. We need to revert back to the treatment of executive income that prevailed before those changes. They’re not working.
- Maintaining a loose labor market via immigration or, as Jared Bernstein put it, turning on the immigration spigot whenever somebody’s wages go up, has not worked.
- Decreasing U. S. production hasn’t worked. The dream of becoming a society that consumes without producing is a fantasy.
- The Clinton era bank reforms have been a disaster, too. In 2009 we should have seized the opportunity presented to us to break up the big banks. Foolishly, we didn’t.
- Cutting personal income taxes, first during the Bush Administration and again during the Trump Administration, has perhaps worked a little but it has increased personal consumption without increasing business investment. I don’t believe that’s working.
- Spreading democracy via hard power whether that hard power is military might or economic might isn’t working. On the other hand spreading democracy via soft power was an enormous success. Too bad that the former has diminished the latter. Taking every foreign policy decision that either Bush Administration or the Clinton Administration made and doing the opposite wouldn’t be a bad start. The Obama Administration’s decisions to support the putsch in Ukraine and attempt to do the same thing in Syria were bad decisions, too.
What else is or isn’t working?
Education.
I like the idea of free or assisted two year technical college.
And lack of a high school diploma should not be a barrier.
Public schools routinely graduate kids who can’t read or do math. Yeah I know, so free tech schools might do the same.
But if they don’t perform at tech school you can legally boot them.
Not entirely buying your first item. In 1965 the CEO made 20x the average worker’s salary. In 1989 it was 58, basically tripled. In 200o is was 368. It was 278 in 2019. So it started well below 1992. Since the implementation it rocketed up but has fallen back, with the same tax reforms. At best, they amplified an existing problem. I am willing to try reversing the reforms to see what happens, but i am guess the management class just finds another way to keep the money. Jus like you point out that they will always find a way to avoid paying taxes.
Steve
If you look at the increases in CEO salary with a finer granularity than that, you’ll see that there was a sharp increase around 1993, following the change in the treatment of stock options. The theory was that holding a piece of the company would improve CEO performance. What happened in practice was that CEO compensation skyrocketed based on stock market performance, frequently without regard to company or CEO performance.
GS:
I agree that the policy from Clinton to the present of emphasizing college education has not worked. Recently, its main effect has been to increase indebtedness. I’m uncertain as to the remedy. I’ve argued this back and forth with lots of people. I don’t believe that more than a minority of the population should actually be considering college and far too often colleges are just remediating what should have been learned in high school or, sadly, before.
Another source of wealth inequality. Looks like it is bad in the Chicago area. Not really sure why this would be a nationwide issue other than richer people are more able to get what they want.
https://www.nytimes.com/2021/04/03/opinion/sunday/property-taxes-housing-assessment-inequality.html
Illinois’s real estate tax laws are byzantine in the extreme. It makes it impossible to compare prices of homes sold within the city with those sold in the rest of the county. My offhand guess is that of the 149 million dollar homes 125 were in Kenilworth, Evanston, Wilmette, Winnetka, and Glencoe. Frankly, I doubt that real estate has a great deal to do with wealth inequality, at least not at the very high end and the very low end. BTW my home is worth just about what it was in 2000. My taxes have at least trebled since then.
Sources of income inequality. At the high end:
– tax laws governing handling of CEO compensation
– financialization of the economy
– interlocking directorates
– offshoring of production and producers capturing most of the economic surplus
At the low end:
– immigration
– offshoring of production and producers capturing most of the economic surplus
I pretty much agree with all of those. Some other things I’ve seen:
– The educational-industrial complex that focuses exclusively on college. At my suburban Colorado high school in the mid-1980s, we had all sorts of technical electives available – wood shop, auto shop, various home economics, typing, and other “hands-on” courses all of which taught valuable skills that continue with me today and turned out to be more useful than most of the required courses I was forced to take.
By contrast in my children’s suburban high school, there is none of that. They get zero experience in any technical hands-on stuff. If you want to take any kind of those kinds of skill-based courses I had in my school, or anything hands-on that isn’t art or music, you have to enroll in the local community college and arrange for your own transportation. And they’re almost all evening classes. Who is going to do that? Yet at my kid’s high school they can take yoga as an elective. WTF?
The complexity of the tax code is ridiculous. We’re a middle-income family that earns some regular wage income, some untaxable income (VA disability benefits), and some 1099 independent contractor income (my job). I had a lot of extra income in 2020 thanks to Covid (I work in cellular internet now, which Covid was great for). After loading up Turbotax in late December my wife and I couldn’t figure out our expected tax burden. So we sent $5k to the IRS on December 31st to avoid the possibility of a penalty and the requirement to make quarterly payments. We ended up getting about half of that back when we eventually filed and figured everything out.
It’s simply unacceptable that a pretty average family can’t reliably estimate its tax burden and doesn’t know what it needs to pay to avoid a tax penalty.
Similarly, our good friends decided to roll over their regular IRA to Roth IRA’s in 2019. Well, that spiked their taxable income for that year, which made them not eligible for all the various Covid payments this last year, which were based on 2019 tax returns. They will be able to claim that as a tax credit this year, because their 2020 income is back to normal and not subject to a one-time spike, but that was something they didn’t understand until I explained to them how the Covid “payments” were structured – which is as a tax credit. Oh, and our stupid press corps didn’t explain well either.
I saw this from Bill Maher a couple of weeks ago and I think it’s on point as a general thesis on the cultural side as a criticism of the US even if a lot of the snark is off-base or wrong.
https://youtu.be/2DH4v6FnbvM
You should tell the whole story on options, Dave. There was a move to limit the GAAP standard of pay (selectively, for CEOs) as tax deductible compensation. The options pay alternative was created in response.
The nature of equity is that many factors cause a change in its value, some unpredictable. It’s risky………..and rewardy. What you really had was social engineers proposing a fix to their deemed inequity. And they created something that, at least in your view, was worse. I call that Government 101.
If Coca-Cola decides to pay their CEO too much, or let him make dumb pronouncements on GA voting law, so be it. You can sell your Coke stock or not buy Coke products.
Many will find a reason that someone else is compensated too highly; few will feel that way about themselves or those they support or admire.
One observation about executive pay.
The 2017 TCJA reformed executive pay in the tax code. The previous beneficial corporate tax treatment of stock options or executive pay was scrapped — through existing arrangements were grandfathered until 2025.
https://www.ey.com/en_us/tax/why-us-tax-reform-may-cause-executive-pay-shake-up
Dave- So in your experience the expensive home are not consistently assessed for lower values as the article claims? Lower value homes are not consistently assessed for values above sale prices as claimed?
Steve
I think the real estate tax system in Illinois is so complicated it’s practically impossible to tell. My home isn’t one of those million dollar homes so I can’t tell about those. What I can tell you is that my property taxes have gone up substantially relative to the worth of my home.
Steve –
I’ve lived, and live, in very expensive homes. The notion that they are systematically undervalued for RE tax purposes is like anti-vaxer crap. Perhaps unique instances. But not systemic.
Dave lives in a great community. And its a tweener. Not too close to downtown. Not too far. It gets tugged at from the winds of escape from near in Chicago vs stay close for the benefits. That drives property values, but its not been decisive either way. Its not the North Shore or Hinsdale, and its not the Gold Coast or Old Town. But the trend in property taxes has been inexorably up. Hence his lament. Plus, I doubt services have improved.
They’ve deteriorated drastically over the last 30 years.
My neighborhood is practically perfect. In light traffic it’s 20 minutes from the Loop, 20 minutes to O’Hare, 20 minutes to Northbrook Court ( a North Shore shopping center). I can walk to groceries, a drug store, and several restaurants. A hardware store is a bit of a hike but walkable.
But five doors south there are two houses that did sell for $1 million or more and a block and a half north is at least was the most expensive house in Chicago.
@Drew
I fully understand “the whole story on options”, and I suspect our host does as well. Because most people have no clue about GAAP, it is easier to call it “Clinton’s millionaire tax”, and yes, it created something worse.
Options, in and of themselves, are not evil, but the inflection point in stock prices is unmistakable. In the past, our host has noted other events in that time period that could have contributed, but options definitely contributed.
I live in a “tweener” neighborhood, and except after Katrina, prices usually do not decrease. In my parish (county), the Assessor’s value is lower than the market value, but that is for all houses.
I am not sure about the particulars, but there is law that requires property tax revenue to remain neutral. This excludes increases to the property tax in elections.
It doesn’t help that 35 years ago the Federal Reserve took upon itself a third mandate: to ensure that the DJIA went up.