Tuesday, October 18, 2011

Income Mobility

Finally leaders in both political parties say they favor reducing income disparities that have grown so large in this country over the last 30 years or so. This week Congressman Eric Cantor is planning a speech on this issue at the Wharton School (an interesting choice of audience). The speech may expand on remarks he made in a TV interview on Sunday:  

About 7 minutes into the clip, Cantor says Republicans want to do something about this problem, but his solution seems to start with reducing taxes on the wealthy. Make life easier for business owners, and they will create more jobs. Income mobility will reduce income disparity.

That's a nice slogan, but shouldn't there be some burden on the proponents of this theory to show that it might actually work? To me, this sounds suspiciously like the "trickle down" economics that was touted in the 1980's as a way of encouraging the rising tide to lift everyone's boat. Instead we got slow growth, and enormous widening of income disparities. If we want to find policies that will reduce income disparities, shouldn't we look at what kinds of policies have effectively caused that to happen, either in other countries, or in our own?

We could look at a country like Sweden, for example, which has much higher and more progressive tax rates than the U.S., as well as much more extensive social services, and which has much more even distribution of wealth as a result (an income distribution that most Americans--including conservatives--say they would prefer to our own.)

Or we could look back in history at the policies in place in this country from the 1940's to the 1970's, a period in which we had significantly less inequality, and also significantly more economic growth, than we have experienced in recent years. Those policies included very high top marginal tax rates (up to a 90% top income tax rate until the 1960's, and a 70% top marginal rate into the 1980's), as well as strong protections for labor unions. Perhaps just as importantly, we had social norms in place that restrained companies from paying their top executives enormous bonuses, that kept a lid on skyrocketing pay in most fields, and that provided decent wages for the middle class.

It's refreshing to see that the Republicans are now supporting the concept of reducing disparities in wealth and income. But they need to show us a working model of their ideas. They can't say they advocate reducing income disparities, while at the same time pushing for policies that sure sound like they would take more from the poor and give more to the rich. In other words--and this advice would apply to politicians of all stripes--if we now agree that income disparity has widened to the point where it must be addressed, don't just re-label the same ideas you've been peddling for a hundred years as a prescription for inequality. Figure out what would work best to reduce inequality, and try that.


  1. I think that the inequality of income of the classes is brought about by the political structure of the government. The elite pay less taxes while the middle class is bombarded with variables in taxes. Also, political favors allows tax evasion.

  2. If more people start investing their resources in binary options trading, the income gap would be minimized.

  3. What BHO is demanding is an National Infrastructiure Bank so that HE 'controls' just whom gets that money; ie, HIS union buddies & others who've supported HIM. The money for infrastructure if anything should 'only' go to the state. IB's What is damaging companies, especially small businesses, are the EPA's stringent over-regulations. When or if those bridges & roads are repaired or built the EPA will even stop some of them because of environmental impacts against some innocuous bug