You might want to check out Scott Winship’s post at Atlantic Online on the changes in income inequality in the 20th century in the United States. Rather than restate it I’ll summarize it: incomes flattened except within the top 10% of income earners. That corresponds pretty well to my intuitive feel for what happened. And also supports my observation that the real fight about income inequality is within the top 10% of income earners.
I haven’t seen any proposals for taxing the rich and giving the proceeds to the poor but I have seen lots of proposals for taxing the rich and giving the proceeds to other relatively rich people, e.g. physicians, highly educated government bureaucrats, etc. Note that a teacher whose total compensation is around $90,000 is among the top 10% of income earners. That’s not that hard: the starting salary for bachelor’s only for a ten month job in Chicago is around $50,000 plus benefits. Assume the benefits are around a third again more.
The assumption is that the poor will benefit indirectly by paying physicians, bureaucrats, and teachers more. I think that’s speculative.
Neither taxing the “rich” and recycling it to the top 10% or giving it to the balance of the population – other than the necessary safety net – is effective policy.
Rather, spur those who pull everyone along with them.
An evolving, modern and more complex society will reward those who can cope and adapt. Anyone can raise cattle, pigs or corn on the family farm. Anyone can pull a lever on an assembly line every 10 seconds. Not everyone can design a car, or a robotic welder. They cant construct apps for the internet, or even write successful books for the childrens section. That takes talent. Sorry, but just like the law of gravity, its true.
It is poor public policy to coddle those who want to continue to make buggy whips, except to facilitate transition, and it is even poorer public policy to punish those moving ahead. In fact, it is immoral.
We have too many people in society who are net-tax recipients. Why? The market isn’t rewarding their skills. What should be done? Take money from those with highly rewarded skills and give the money to those who don’t have highly rewarded skills? No, that’s a dead end.
How about training people with low market skills so that they become high market skills people? No, we’ve had decades upon decades of policy failure on this front and the evidence shows that the solution isn’t found with a veneer of education when the problem is low human capital.
How about stopping social transfers and allowing inequality to skyrocket? No, that’ll destabilize society.
If the goal is to reduce the ratio of net-tax recipients to net-tax contributors, then the first order of business is to stop importing net-tax recipients. This creates the immediate effect of creating conditions in the labor market which will lead to labor market scarcity.
The next step should be to entice people with low market skills to seek their fortunes elsewhere. The US is a society in which it is very expensive to live, so if these people relocate to another country where the cost of living is more modest, then the incentive we offer them can be stretched further. If the taxpayer subsidy to a person is $100 when they are in the US then a taxpayer subsidy of $40 per day to a person outside the US could, in many cases, afford them a higher quality of life. Deliver the subsidy, in part, as a large up-front grant, and that should work towards enticing those on the margin to step forward.
“And also supports my observation that the real fight about income inequality is within the top 10% of income earners.”
How so? The big growth has been in the top 0.1%. I see problems with having too much money concentrated into the hands of too few people. I also see problems with limited mobility. I think the great experiment in democracy begins to fail (remember what Mao said) if people realize they have no real chance to move up, or if others have no chance to fail.
“Rather, spur those who pull everyone along with them.”
Who would those be? We cut taxes for the “job creators”. We deregulated and put in an administration that would not enforce them anyway. The result? They destroyed the world economy. Job creation in the 2000s was very weak. Make your case for why we double down. Why will it be different this time? Why wont the “job creators” just invest in innovative financial products again? Why will they invest domestically now when they did not in the past?
Steve