Wednesday, December 21, 2011

Freakonomics takes on inequality

On Monday, Aaron Edlin and I published a cri de coeur op-ed in the New York Times calling for a Brandeis tax, an automatic tax that would put the brakes on income inequality. In the next few days, Aaron and I will be publishing a series of posts explaining more about our rationale and providing more details on how a Brandeis tax might be implemented.
Read it at Freakonomics
There Will Be Rich Always: Finding a New Way to Think About Income Inequality
by Ian Ayres
(h/t Mark Thoma)

Interesting approach to "Don't tax the rich" by taxing inequality statistically instead.
Importantly, our Brandeis tax does not target excessive income per se; it only caps inequality. Billionaires could double their current income without the tax kicking in — as long as the median income also doubles. The sky is the limit for the rich as long as the “rising tide lifts all boats.” Indeed, the tax gives job creators an extra reason to make sure that corporate wealth does in fact trickle down.
[from the Times op ed]
Our Brandeis tax is conservative in that it doesn’t attempt to reverse the gains of the wealthy in the last 30 years. It is not a “claw back” tax. It merely assures that things don’t get worse.
[also from the Times op ed]

I would argue that the status quo is already too great a disparity for liberal democracy to function. For liberal democracy to work properly, political power must be more equally distributed and in a society where "money talks," that disparity has to be managed carefully to prevent privilege from emerging.

Excessive privilege has already emerged and is rotting the core of democracy by creating a double standard where equality before the law. Equal treatment politically should rule if the US is have a government "of the people, by the people, and for the people," as represented and for which much blood has been shed and treasure spent.

Evidence that the status quo is excessive. The op ed itself:
The Occupy Wall Street movement is right to decry the increasing power of the 1 percent as a threat to democracy. President Obama is right to characterize the present as a “make-or-break moment” for the middle class. As 1-percenters ourselves, we call on Congress, for the sake of democracy, to end the continued erosion of economic equality in our nation.
This is hardly a good argument for a freeze of the status quo and a crystallization at a level of inequality that is already resulting in social unrest.

1 comment:

beowulf said...

I'm with Sen. James Webb on this, its pointless to raise the ordinary income top rate of 35% when the capital income (long term cap gains, dividends) rate is 15%. The majority of the income of the Forbes 400 comes from capital gains. The simplest tax reform is simply tax equivalent incomes at the same rate.
If you want to amp it, for highest incomes also tax unrealized capital gains (liquid assets mark to market, illiquid assets with retrospective interest charges added at realization).