In an column by Annie Lowrey in the New York Times Business Day section she discusses the work of economists Emmanuel Saez and Thomas Piketty, who document the degree of income inequality in the United States, offering their solution of steeper redistribution of the earnings of the 1 percent rich minority.
“The United States is getting accustomed to a completely crazy level of inequality,” Mr. Piketty said, with a degree of wonder. “People say that reducing inequality is radical. I think that tolerating the level of inequality the United States tolerates is radical.”
The two economists argue that even Democrats’ boldest plan to increase taxes on the wealthy — the Buffett Rule, a 30 percent minimum tax on earnings over $1 million — would do little to reverse the rich’s gains. Many of the Republican tax proposals on the table might increase income inequality, at least in the short term, according to William G. Gale of the Tax Policy Center and many other left-leaning and centrist economists.
Conservatives respond that high tax rates would stifle economic growth, at a minimum, and cause some businesses and high-income workers to flee to other countries. When top American tax rates were much higher, from the 1940s through the 1970s, businesses could not relocate as easily as they can now, say critics of Mr. Piketty and Mr. Saez.
But the deep downturn of the last few years, and Mr. Obama’s election, brought the issue back to the fore. Peter R. Orszag, the former Obama budget director, has said the Piketty-Saez work “helped to point the way for the administration in its pledge to rebalance the tax code.”
Unfortunately, these economists are blinded and fail to see that what needs to be adjusted is the opportunity to produce, not the redistribution of income after it is produced.
Citizens For Tax Justice, a liberal tax reform group, figures that the Buffett Rule would affect about 0.08 percent of taxpayers, or 1 out of every 1,250. People will be tempted to think that by enacting the Buffett Rule, we have solved the problem of growing inequality, when we won’t really have even touched it. The medium family income in America is about $50,000 (half above and half below), which means that if two people in your family are working and they bring in a total of more than $50,000, you’re in the top half, and any redistribution through the tax system for the purpose of reducing inequality might increase your taxes, not reduce them.
There continues to be heated discussion about tax reform and tax reduction, as well as budget cuts. However, as widely discussed, the proposals will both further concentrate ownership of productive capital and result in the requirement for further redistribution through the tax system in order for the 99 percent to have income to create consumer demand. Still, there are no leaders who are advocating a reform of our financial system that will end the monopoly the 1 percent now enjoys, which empowers them to continue to amass concentrated ownership of productive capital (represented in income through capital gains and dividends taxed at 15 percent). This unjust system must be reformed so that the 99 percent can acquire productive capital ownership simultaneously with the economy’s growth and pay for their acquisition out of the future earnings of the new capital formation investment. This is the Just Third Way that over time will empower the 99 percent to build viable capital estates, while simultaneously optimizing the application of technological innovation and invention and providing jobs as a result of far greater economic growth.
This should be the idea that has a strong political punch.
The current debate about a fairer tax code and ending the Bush tax cuts relates to what percent of Gross Domestic Product (GDP) should the federal government spend and what percent of GDP should be collected in taxes. Unfortunately, the current economy is growing at the Congressional Budget Office projected rate of less than 3 percent. This is pitiful, especially in light of the advances in technological production processes that are capable of producing a quality material lifestyle for ALL American citizens. The focus needs to be on growth with at least a 6 percent growth rate and a targeted 20 percent growth rate, which would allow the society to maintain promised health care and Social Security commitments to a growing elderly population, stabilize taxes at 15 percent of GDP, and balance the budget. With growth rates well over 6 percent, health care and Social Security benefits could be increased, taxes could be lowered, while achieving a surplus.
The path to such prosperity requires recharting the financial system to empower ALL citizens to acquire long term viable private, individual ownership portfolios representing assets of new productive capital (the non-human factor of production embodied in superatomated and computerized processes that require less labor worker or no labor worker input) and pay for their acquisition out of the future earnings of the productive capital investments financed by credit insured by the Federal Reserve.
The accelerated growth rate, due to the the infusion of credit into productive capital investment, would result in a majority of Americans earning additional income from wages and salaries and dividend, interest, and capital gains from other opportunities created beyond the dividend income payout from the productive capital investments. The accelerated growth rate would produce jobs that pay well and would significantly expand markets due to rising consumer demand, which in turn would generate greater business profits and opportunity for more productive capital investment. Everyone would benefit––rich and poor. There would be lower unemployment (making for the elimination of make-work), higher personal incomes, lower deficits due to greater tax revenues, lower tax rates, and better government services, with every citizen benefiting from a higher standard of living.
Such a path to prosperity would empower ordinary citizens, the majority of which are capitalless, to own a substantial percentage of the future productive capital formation creating the growth of the economy. The GOAL would be to assure that every man, woman and child would be able to accumulate a portfolio of productive capital assets large enough to provide a secure source of income. After a few decades, dividend income from the ownership of productive capital assets would become the primary source of income, though well-paying job opportunities would be plentiful for those who want to work for the satisfaction that can come from employment, whether in business, education, healthcare, science, and government or other self-rewarding contributions to society.
