Jun. 4th, 2017

When Occupy Wall Street started, they had a motto: "We are the 99%". They were pointing out that income inequality is soaring, and most gains go to the top one percent of people in this nation. (They were and are correct, but it turns out that a huge percentage of the gains go to an even smaller percentage of people!)

Why does that matter? Why isn't this dismissible as envy - people being sore that the wealthy are doing better than they are?

The whole story starts in the Reagan years, when it was proclaimed (by Reagan and his ilk) that the real problem with the economy was on the supply side. For example, no one (so Reagan would say) would work on five movies in a year. The first four put you in a high tax bracket, so the pay you got for the fifth would get eaten up by taxes.

This is a market failure, if true - though let's keep in mind that if a person made enough money working on four movies, we may not feel too terribly sorry for them if they need to shelter the pay for that fifth movie, or choose to take two months (plus change) in downtime each year. Still, it's a market failure - if a person is good enough to be in demand to help on five movies in a year, they should be able to choose to make that fifth movie and earn the extra money.

Does that mean a huge cut in the marginal rates was the answer? I suppose it depends on the question. The problem is that the federal income tax is based upon actual income - revenue, minus necessary expenses. If you run a business - HVAC, plumbing, a pizza parlor - you don't pay tax on what people pay you. You pay tax on what people pay you above and beyond the costs of doing the job - and that includes salaries.

If your business were to earn $350,000 in a year, but you paid $100,000 in salaries and benefits, and $75,000 in other expenses, you pay taxes on $175,000. Let's say you have to choose between working your employees harder (you think you can - the economy isn't doing that well, so they're not as likely to quit, and if they do, someone else will need the job), or hiring a new employee at $25,000 a year. If the tax rate is 70%, the net cost to you is only 30% - $7,500 - because if you don't pay that in salary, you pay 70% in taxes on it. If the tax rate is 30%, the situation is reversed: that new employee costs you over twice as much. If you take the money home, you get to keep $17,500. An employer in that situation is far more likely to decide their employees could put in a bit more work....

The rightwing in this country loves to call the rich "job creators" - but the educated members of the right know full well that they've set up incentives so employers want to cut jobs - both in actual number of jobs, and in salary and benefits of the jobs still needed - because low marginal tax rates have made each dollar paid for employees a lot more expensive.

Okay, but: instead of paying 70% to the government, people have more money in their own pockets so they can use it to do what they want. Won't that mean more spending on stuff people want, rather than spending on what the government thinks is best? And won't that mean a boom in business, a "rising tide that will raise all ships"? While some businesses cut jobs, won't new businesses crop up, and create new jobs?

That's a good theory, but it hasn't worked, and that is precisely why Occupy Wall Street made such a valid point. The gains haven't created a rising tide that raises all boats - it's created a yacht club, members-only, with ordinary people struggling to keep afloat, wondering where their promised boat (just a tiny thing, barely worth calling a 'houseboat' but it was theirs) went. Well, it became possible to stay in business without paying folks enough money to live on, much less buy that tiny metaphorical-houseboat.

This didn't happen all at once, of course - it took time. But the Reagan years were 30 years ago, and now, good jobs are really hard to come by. It's not that the money isn't there - there's plenty of money. It's just being taken in profits, rather than used to pay workers.

So you see, the problem with inequality isn't the inequality per se - it's that the inequality comes from the people on top demanding, and getting, an ever larger share of the rewards, by putting ever greater downward pressures on the rewards given to workers.

To some people, this seems fair. After all the wealthy put some of their wealth at risk, in business ventures; why shouldn't they be able to so why shouldn't they get every single penny they can out of their business? And putting capital at risk should earn you some money from it - and if you're a Steve Jobs, who can make a company create brilliant products making boatloads of money, you certainly earn a big chunk of that cash!

I'm not one of the people who thinks that seems fair I care about justice, so I can say that people deserve a return on capital, but the working class folks also deserve a fair share of the wealth being created.

When workers are being squeezed, in part through automation, and in part because of poor incentives in the tax code, you can imagine different ways of tackling the issue.

You could create incentives to share more of the wealth downward - a graduated income tax, with deductions and credits for things that actually help create or improve jobs is one such method. So you can pressure employers to improve wealth distribution.

(This was part of why there was a lot of wealth spread around when tax rates were higher - the joke about the "businessman's 3 martini lunch" existed because a business lunch was deductible, and at a 70% marginal rate, that business lunch cost 30 cents on the dollar, so it's okay to run up a big bar tab. That was probably bad for over-indulgent company officials, but it also meant lots of business for restaurants.)

You can also use the government to improve wealth distribution, like with the obvious example: most industrialized nations guarantee health care to all citizens. This way, even the local fellow who's a hard worker, but never going to be anything better than a ditch digger or burger flipper, gets to see the doctor when sick - yes, even if they have cancer! - and receive decent medical care.

Governments can also provide other things - for example, SNAP (formerly called Food Stamps) is a great way to support a free market in food. If food prices are too high, you can increase SNAP eligibility and benefits to help tide people over, and help prevent market failures caused by other methods of trying to keep food prices reasonable. Housing assistance is also a great way to provide better outcomes - far better than rent control, for example, since rent control can leave landlords without the money to keep buildings in good repair.

Both of these ideas - using incentives, or direct distribution, to ensure the working class can get by - are defensible, but they do require the wealthy to give up wealth they might otherwise get, so the GOP has picked a third choice:

Do nothing, let people's wages stagnate and shrink, let people live in ever-more-desperate economic situations, and keep insisting that we have to cut, cut, cut the safety net to "give people the dignity of paid employment."

That really is a claim that the GOP likes to make: the ridiculously small benefits used to help the poorest of the poor are so generous they keep people from working hard to gain those benefits by themselves. Thus, to the GOP, the reason folks haven't been doing well - the reason wages and benefits have been stagnant = is that folks are so comfortable about the social safety nethammock, they're just not working hard enough! If only they worked harder, good paying jobs with good benefits would appear. I'm sure the folks who used to work in coal mines will be comforted to know that the problem with good paying jobs mining coal is that working in a mine isn't working hard enough!

But I reject that ridiculous notion. People are working hard, and trying hard, and even praying hard, so the GOP's position - cut the social safety net so people try harder - reminds me of a quote from Robert Heinlein: "If you pray hard enough, water will run uphill. How hard do you have to pray? Hard enough to make it run uphill, of course!" (Heinlein was fond of using the notion that water will never "run" uphill, ever, no matter how desperately you want, and need, it to do so.)

Now, I have to confess: I don't know if Heinlein would agree with me. He might see that bright, hard working, young people can sometimes make a comfortable living for themselves, and accept that as proof that hard work is enough. Me? I say that, since so many people are trying so hard, and not really getting any reward for their labor, and since corporate America is constantly looking to cut labor costs, it's time to admit that trying hard isn't enough. If there were still plenty of high paying jobs going unfilled, sure, maybe people aren't trying hard enough - but there aren't. And while there are people who are more and less industrious, on the whole, the average worker is industrious enough that it's not lack of effort leading to the lack of good jobs.

So: income inequality, as it stands now, really matters, and to rational folks, it raises some difficult questions that need to be answered. On the other hand, to the GOP, there isn't even a question (except, of course, "how can we blame all of this on liberals?")!
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