Tuesday, July 1, 2008

Richly Taxing the Rich: the Only Way Back to COMPLETE Fairness?

Heavily taxing the rich may be the last step back to 1973's fairer distribution of income in the twenty-first century -- at least until gradually downsized expectations take over the minds of linebackers, CEOs and news anchors -- a twenty-first century minimum wage could be the first step, twenty-first century style reunionization (legislated sector-wide labor agreements) the in-between.

A couple of years back, I figured that jumping the minimum wage from $5.15/hr to $12.50/hr (the latter being all of 25% above LBJ's 1968 minimum wage, adjusted -- 100% increase in average income later) would add less than 4% to the cost of GDP output -- shifting about the same percentage of overall income to the bottom 40 percent of incomes via increased prices for what they produce ($12.50/hr being the 40 percentile wage).

This 4% would be shifted from those who had kept up better if not completely with average income growth over the past 35 years (40 percentile up to 90 percentile incomes -- see chart derived from Robert Gordon below) as well as from those who did better than average growth through that period (top 10 percentile incomes).

Hopefully, 40 through 90 percentile earners could compensate for the proportion of the 4% shifted away from their pockets -- absolutely, if not relatively -- either, through up pressure from the higher minimum wage, or better yet, due to long overdue reunionization of America -- the near 40 percentile making out better percentage wise from the overall upward shifts than the near 90 percentile.

Ultimately, the bottom 90 percentile of incomes would like to use inflation to finish shifting the missing 12.4% of their incomes back from the top 2-3 percentile incomes (90-96 percentile incomes mostly kept even pace with growth since 1973). But alas, 12.4% higher prices for consumer goods and services wont much shrink the 2500% bloated incomes of linebackers, CEOs and news anchors -- 2500% more than what similarly situated folks earned in the same professions 25-35 years ago.

In my non-professional -- hopefully ball park -- way I would be willing to raise the maximum income tax rate to 75% for incomes above $300,000 and to 90% for incomes above $1,000,000 -- if only until top wages began to fall back in line with the distribution patterns of 35 years ago -- if that is the only way to squeeze the last of the toothpaste back into the top of the tube.

But, I just read in Counterpunch an interview with former Wall Street economist Michael Hudson in which he explains how the rich avoid top income tax levels by putting all their eggs into rent seeking baskets, how in 2005 the US created 227,000 NEW millionaires (almost one for every thousand Americas -- in one year!), how America's millionaires now own $30 trillion dollars worth of equity which allows them to keep and live in their own separate economy. So tax may still be needed for the final leveler, but it may take some intelligent structural changes to taxing wealth to accomplish that goal (don't worry folks; economics really ain't rocket science).

In the long run, if the 2500% bloated incomes of the few are a result of the systemic squeezing of the incomes of many-- a result of American labor's, unique in all the First World, collective inattention to the need to bargain collectively -- then, restoration of bargaining balance in the American labor market is the most fundamental path to restoring that 12.4% to the 90%.

Karl Marx identified what American labor needed, when he was a correspondent for a stateside paper: he said America did not need socialism because we had labor unions. Problem with progressive American economists (and all group/hunter-mentality males?) is that: the more desperately we need to do things differently -- like going the modern route of sector-wide labor agreements -- the less likely it is that capable progressives will ever broach the concept in the national conversation precisely because the subject is so unspoken they fear it impractical (for now -- a now that lasts forever) to be the first to bring it up. Meanwhile, 90% of Americans in the unbalanced labor market go on losing the race to the bottom.


Dean Baker (in 18th comment on his blog post) reproduced what he called "a slightly altered table from Gordon's paper, showing income shares in 1972 and 2001" -- my percentage changes on the right.

0-20_______2.6%, _ 2.0%________- .6%__ -12.3%
20-50____ 16.0%, _ 11.7%_______ -4.3%__ -11.7%
50-80____ 33.7%, _ 27.2%_______-6.5%____ -7.4%
80-90____ 17.0%,_ 16.1%________ - .9%___ -
90-95____ 10.8%,_ 11.3%______ +_ .5% __+
95-99.0___12.2%,_ 14.8%______ +2.6% ___+ 3.1%
99.0-99.9__ 5.7%,__ 9.6%_______+3.9% ___+ 7.0%
99.9 -100__ 1.9%,__ 7.3%_______ +5.4%__ +12.4%

4.9% loss of overall share meant 26.3% cut of 0-50 percentile share.
6.4% loss of overall share meant 14.5% cut of 50-90 percentile.

(see p. 84 of Gordon for similar breakdown of wage share)

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