Thursday, December 22, 2011

Freakonomics — The Brandeis Ratio Explained

Continuation of previous posts on fixing inequality by taxing statistically with "the Brandeis ratio."

Read it at Freakonomics
An Inequality Tax Trigger: The Brandeis Ratio Explained
by Ian Ayres


Clonal said...

The proposed tax leaves much to be desired. It focuses on median income, and uses a multiple of the median income to determine the tax brackets (at least that is what I think I read) I would rather have the Brandeis ratio indexed to the minimum wage (or possibly, the average income of the bottom 10% of previous year's W-2 filings) See - W-2 Income Data

Look particularly at the income distribution of the bottom 10% and 20%

Lifting the median income does not automatically lift all boats as contended by the posted article. Lifting the bottom 10% or 20% may well accomplish that.

Tom Hickey said...

Agree its too timid. Based on what was said in previous posts, it seems that they are taking a practical course that preserves the status quo and prevents inequality from worsening. It's already at the point that is resulting in social unrest and needs to be significantly reduced.

There is no way to have such a wide gap in wealth and income and not have a privileged class that is able to exert influence and even capture power. This is poisonous for liberal democracy, and there needs to be fundamental institutional change to correct it.

Clonal said...


Also, the tax brackets have to be reworked so that the top brackets approach the levels they were at in the 1950's. The brackets have to be adjusted on the basis of CPI adjusted W-2 wages for the bottom 20%. This would also have consequences for adjustments to the legal hourly minimum wage.

Tom Hickey said...

Clonal, I would start with the floor wage/benefit as price anchor and work from there in multiples. For tax purposes, I would also distinguish economic rent from both income from production and also return on direct investment, and I would also distinguish between ownership of real and financial assets.

In a capitalistic society there has to be a balance between maintaining wealth and income equality and incentivizing capital formation.