Opinion

The Great Debate

The lost promise of progressive taxes

By midnight on April 15, roughly 140 million Americans will have filed their federal income tax returns and breathed a sigh of relief. Politicians from both parties, however, will spend most of the day criticizing our current tax system.

Conservatives bemoan that not enough people are paying taxes. They insist that a minority of “job creators” and “makers” are underwriting the social benefits that go to the “takers.” Liberals cite the growing concentration of wealth and lament that the rich don’t pay their fair share. In this new Gilded Age, they say, the 1 percent should be paying far more of their annual earnings.

Yet neither party seems willing to reform our tax system dramatically. Both avoid talking about the vital link between taxes and government spending. This was not always the case.

More than a century ago, during the first Gilded Age, lawmakers embraced progressive taxation. Responding to the massive inequalities between plutocrats and workers, policymakers used graduated taxes to rebalance the tax burden, reminding Americans about their shared duties to each other.

As the nation struggles through another period of rising inequality and social dislocation, history shows there are effective ways to address these issues.

Self Help is no help for inequality

For all the howls of rage from plutocrats like Tom Perkins and Ken Langone over possible tax rate increases, there has been relatively little public anger about the increasing wealth disparity in the United States — especially compared to the past.

During the Progressive era in the early 20th century and the Great Depression, we saw violent strikes and marches on Washington. These days, we have an army of sometimes-intemperate bloggers and a labor movement so bereft the United Auto Workers union recently failed to mobilize workers in a Volkswagen factory in Chattanooga, Tennessee. Occupy Wall Street, meanwhile, is now a distant memory, even as more than half of all Americans say they believe the nation remains in an economic recession.

So what changed? Kathleen Geier speculates in the Washington Monthly that the mainstream media no longer reflects the values of the working class. That’s true, but it’s more complicated than that. In fact, the media reflects our values all too well.

from Lawrence Summers:

On inequality

Inequality has emerged as a major economic issue in the United States and beyond.

Sharp increases in the share of income going to the top 1 percent of earners, a rising share of income going to profits, stagnant real wages, and a rising gap between productivity growth and growth in median family income are all valid causes for concern. A generation ago, it could have been plausibly asserted that the economy’s overall growth rate was the dominant determinant of growth in middle-class incomes and progress in reducing poverty. This is no longer plausible. The United States may well be on the way to becoming a Downton Abbey economy.

So concern about inequality and its concomitants is warranted. Issues associated with an increasingly unequal distribution of economic rewards will likely be with us long after the cyclical conditions have normalized and budget deficits finally addressed.

The minimum wage fight: From San Francisco to de Blasio’s New York

In his State of the Union address last month, President Barack Obama urged cities and states to bypass Congress and enact their own minimum wage increases. “You don’t have to wait for Congress,” he stated.

On Monday, New York City Mayor Bill de Blasio followed the president’s advice. De Blasio announced, in his State of the City address, that he plans to ask Albany next week to give the city the power to raise the minimum wage.

The New York mayor is not the only elected official putting Obama’s words into action. Cities across the country, from New York to Seattle, are moving aggressively to confront rising income inequality and falling real wages for low-paid workers. These cities can learn important lessons from San Francisco’s bold experiments over the last 15 years.

The other inequality is structural

For the second year in a row, the issue of economic inequality was featured in President Barack Obama’s State of the Union Address. Even some Republican lawmakers have now dared to speak the “i-word.”

Though Obama predictably avoided comparisons between the earnings held by the top 1 percent and the 99 percent of Occupy Wall Street fame, the message was familiar: The widening income gap between the very rich and everyone else is a stain on the social compact and a serious problem for future economic growth.

Focusing on this income inequality is crucial. Lower incomes create an oxymoronic class of “working poor.” Inadequate pay hurts consumption and reduces tax revenues. People simply do more for themselves with more money, growing it into wealth for future generations — and as a cushion against economic downturns. A good job, as the president said, remains the best access to the promise of opportunity.

Obama’s small steps won’t fix inequality

President Barack Obama is taking on the challenge of increasing the United States’ all but stagnant economic mobility.

He wants, he said in Tuesday’s State of the Union Address, to both “strengthen the middle class” and “build new ladders of opportunity” into it. His modest plan — modest so that it does not need the congressional approval he’s unlikely to receive — includes raising the minimum wage for federal contract workers and offering workers a new workplace retirement savings account option.

It’s a nice start. But nowhere near enough.

The United States’ sluggish economic mobility is not new. According to a paper recently published by academics at Harvard University and the University of California, Berkeley, it has been mediocre for those born in the 1970s, and it is just as bad for those born 20 years later.

Obama’s address: Borrowing from Bubba and the Gipper

Many presidents don’t have the problem of salvaging their second terms because the voters threw them out of office. Among those who win reelection, the successful communicators, such as Ronald Reagan and Bill Clinton, used many of the techniques that President Barack Obama deployed in his State of the Union Address last night. He is likely to repeat them often this year, which is one that will determine whether his administration is remembered as transformational or transitional.

Giving Americans credit: While most recent presidents began their State of the Union addresses by rattling off positive economic statistics, Obama did it differently. Using archetypal anecdotes — a dedicated teacher, a high-tech entrepreneur, a night-shift worker – Obama gave regular Americans credit for reducing unemployment, adding manufacturing jobs and increasing high school graduation rates. In so doing, Obama emulated Reagan, who declared in his second State of the Union address of his second term: “Today, the American people deserve our thanks.”

By speaking for the American people instead of talking at them, Obama seeks to do what Reagan and Clinton accomplished: appeal to swing voters frustrated with political bickering.

How do we measure whether Americans are better off than in the past?

Are you better off than you were twenty years ago? Probably not relative to very rich people today, but what about relative to you, or to someone your age and position twenty years ago? Income inequality has been called the defining issue of our time. Powerful leaders, from President Obama to Pope Francis, have cited it as evidence that the unfettered capitalism that has enriched the wealthy hasn’t been shared. Of course, there’s a difference between the gains in income being shared evenly, shared a little, or making everyone else poorer. In many ways the average American is much better off than he used to be; in other ways he’s worse off.  But even if we focus on what’s gotten better, we may still need to worry about the future.

The most common metric used to measure changes in our economic condition is income, but several other factors determine quality of life: health, consumption, leisure time, financial security, and prospects for the future. Which of these factors matters most comes down to personal values. Some people prefer more leisure to income. If they work less, even at the cost of lower earnings, they’ll be happier. Some people are more comfortable with risk; health care coverage and financial security matter less if they can buy more stuff.

In order to assess economic improvement, we must also consider demographics. Over the course of your lifetime, you will probably see an increase in earnings and wealth and accumulate goods. Most people get pay raises as they age and acquire more skills. They also become more risk averse and have more years to collect wealth. In this respect, the relevant question is: are your finances improving at the same rate they used to? Or did people your age used to have more than you do now?

Heads, the rich win; tails, the poor lose

The rich, to mangle F. Scott Fitzgerald slightly, they rationalize differently than you and me. Whether they succeed or fail, they’ve always got a pseudo-scientific excuse. If they do well, it’s because their habits are better than those of the rest of us peons. If they do badly, it was their upbringing, since wealthy parents too readily substitute lucre for love.

Don’t believe me? Let’s turn to the headlines.

Last month, personal finance and self-responsibility guru Dave Ramsey posted a list on his website entitled, “20 Things the Rich Do Every Day,” originally written by New Jersey accountant and certified financial planner Thomas C. Corley, who, according to his website “studied the daily activities of 233 wealthy people and 128 people living in poverty.”

The list, which quickly went viral, was filled with the self-improvement tropes that could be called “Why the Rich Deserve Their Money.” Prosperous people eat less junk food than poor people. They read more books. They watch less reality television and make their children volunteer more time to charity.

Steven Cohen: The Gilded Age revisited

There he is in all his tarnished glory: Steven A. Cohen, arguably the most famous, and infamous, hedge fund manager in the United States. Maybe the world.

He lives in a 35,000-square foot Greenwich, Connecticut, mansion with an indoor skating rink, golf course and everything an exclusive school might offer. His New York City duplex in Bloomberg Tower is for sale at $115 million. He’s staying in a $23.4 million Greenwich Village maisonette, while his $38.8 million 8,250 square-foot house nearby is being renovated. Last summer he bought an East Hampton beach house for $60 million. He has another place there — 10 bedrooms and a spa — but it isn’t close enough to the water.

Cohen’s extensive art collection could fill a private museum. It includes Jeff Koons’ enormous yellow balloon dog sculpture and Pablo Picasso’s “Le Rêve.” Damien Hirst’s dead shark, preserved in formaldehyde, hangs from the ceiling in Cohen’s office. This may or may not be an intentional symbol of his methods of operation.

  •