Resource Proposal #1 (more on proposals)

Type (Biz, Gov, or Soc): Society

Name of Resource and Citation: Inequality for All. Dir. Jacob Kornbluth. Perf. Robert Reich. 72 Productions. Documentary.

Topic for Paper: Increase of Income Inequality in the U.S.

Your proposal.

In Inequality for All, American economist and former secretary of labor Robert Reich details the causes of widening income inequality in the United States, as well as its effects on the country’s economy and democracy itself.  He begins the documentary by explaining that some inequality is inevitable in capitalism, as it provides proper incentives to be productive, to work hard and to be inventive.  However, too much inequality becomes a problem.  One of the statistics he cites is that in 1978, the average male worker earned $48,302 (AFI) while the average in the 1% earned $393,682 (AFI)–in 2010, the former earned $33,751 and the latter earned $1,101,89.  Why is this?

It began in the late 1970’s.  Three things happened–more and more American companies began manufacturing abroad, the spawn of the technological revolution, and the deregulation of financial markets that gave them more power.  Labor unions declined and middle class wages stagnated.  There are two main interrelated causes of the underlying issue in the aforementioned events–globalization and technology.  Globalization allowed companies to outsource their labor and technology has allowed their business processes to become more efficient (by automating those processes and cutting workers).  For example, employs 60,000 people and generates $70-80 billion in revenue.  However, if a traditional mom-and-pop retailer generated similar revenues, it would employ 600,000-1 million employees.  With labor unions declining and corporations growing larger due to globalization and technology, the middle class lost its power.

With the wealth of wealthy individuals and executives came tax breaks for the top marginal tax bracket.  As these individuals became wealthier and wealthier, they gained the power to lobby politicians in order to gain their favor.  So–what are the consequences?  By flooding the political system with money, the wealthy have undermined our entire democracy.  The income gap is approaching a point where it will become a problem–what we need to do is return to the system the U.S. implemented before Ronald Reagan, where the top marginal tax rate was 70%–not 15%, where it effectively is now.

Resource Proposal #2 (more on proposals)

Type (Biz, Gov, or Soc): Government

Name of Resource and Citation: United States. Congressional Budget Office. House Budget Committee. A Deeper Look at Income Inequality. By Paul D. Ryan. N.p.: n.p., 2011. Print.

Topic for Paper: Increase of Income Inequality in the U.S.

Your proposal.

The Congressional Budget Office recently released a study that outlines the changes in the distribution of household income in the U.S. from 1979 to 2007.  There are three main questions the study attempts to answer: what causes the inequality, how government policies affect it, and what policymakers should do about it.  Government policy directly affects income inequality through redistribution of wealth through taxes and transfer programs such as Social Security, Medicaid, and Medicare.

The study found that real average after-tax household income grew by 62% in the 30 year period.  Although this seems like a good sign at first, it is the distribution of these income gains that present a problem–real average after-tax income grew by 275% in the top 1%, while it grew by a mere 18% in the lowest quintile.  In addition, distribution of transfer payments has moved away from households in the lower quintile of income scale.  This is because of a shift from programs for the lower income scale such as Social Security and Medicare to programs that support the elderly population, also known as entitlement programs.  This is partly caused by the retirement of the baby-boom generation.

The CBO also claims that other causes of the inequality are “technical innovations that have changed the labor market for superstars (such as actors, athletes, and musicians), changes in the governance and structure of executive compensation, increases in firms’ size and complexity, and the increasing scale of financial sector activities.”  This concerns me–why do these “superstars” really need to be compensated so much?  They are fortunate enough to have careers that they love–is that not enough compensation?  I’m not saying they shouldn’t be paid well, but when it contributes to such a significant issue in America, there should be a limit.  The same goes for executives.  “Increases in firms’ size and complexity” is very cryptic and vague, so it is more difficult to understand and critique.  Lastly, the “increasing scale of financial sector activities” translates to me as the few and powerful taking advantage of the majority through the financial system.  This could be through high frequency trading, for example.  I have no issue with supporting the elderly–in fact, I am in full support of it.  However, there needs to be a structural change where greed of a few ruins the well-being of the rest of the population.

Resource Proposal #3 (more on proposals)

Type (Biz, Gov, or Soc): Business

Name of Resource and Citation: Gilani, Shah. “Income Inequality Is What’s Destroying America.” Forbes. Forbes Magazine, 27 Sept. 2013. Web. 04 May 2015.

Topic for Paper: Increase of Income Inequality in the U.S.

Your proposal.

In his article, “Income Inequality Is What’s Destroying America,” Shah Gilani criticized Barack Obama for claiming to address the increase in income inequality in the U.S. by making welfare the biggest chunk of federal spending.  Gilani argues that while this may be true, Obama isn’t taking from the rich and giving to the poor–he’s taking from the middle-class an increasing number of poor Americans and an increasing number of rich Americans–i.e. the middle class is disappearing.  He explains how the majority of America’s income pie doesn’t consist of earnings–it consists of “capital gains in primarily financial assets.”  The taxes on these gains are far too low, while the taxes on earnings are much higher.

WHAT?  ARe you sure?  Most of “income” is not labor but capital gains?  Holy shit, that seems huge.

Gilani also blames the fact that the Fed has kept decades-long low-interest policies and quantitative easing to increase the value of financial assets, while these assets have been taxed at significantly lower rates than ordinary income.  As long as these tax codes continue to favor the wealthy, the income inequality gap will continue to widen and we will eventually encounter another social revolution.  Gilani argues that we should consider a system where capital gains tax rates increase as income from capital gains increase, just as ordinary income tax rates increase as ordinary income increases.

Hmmm.  Seems like it could invite all kinds of weird accounting tricks to make gains seem lower then they really are.  But interesting.  I have wondered about lowering the rate for assets held longer to encourage longer term investing.  

Gilani’s argument makes sense to me–capital gains tend to be earned by those who can afford to take a financial hit (a.k.a the wealthier members of the population)–so why should they be taxed at a lower level?  For example, Warren Buffett claimed that he paid an effective tax rate of 17.4 percent in 2011, while people who worked in his office made much less but paid an average of 36 percent in effective taxes.  I agree with Gilani–a simple and fairer change is necessary in our tax structure, unless we want chaos to break out.

Just so you know, those opposed to these kinds of ideas will often say that the wealthy pay “a majority” of the taxes.  What they mean, if it is even accurate, is that the total amount colelcted comes more from the wealthy than the middle class or the poor. However, fairness is how you define it.  Gilani seems to be looking at how much taxes are as a proportion of income.  So Buffet;s lower rate, even if it produces more dollars, seems unfair or undemocratic (or pick your adjective).



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