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AFEEMAIL  January 2009

AFEEMAIL January 2009

Subject:

Re: Income Distribution

From:

"Stanfield,Ron" <[log in to unmask]>

Reply-To:

AFEEMAIL Discussion List <[log in to unmask]>

Date:

Fri, 30 Jan 2009 14:53:27 -0700

Content-Type:

text/plain

Parts/Attachments:

Parts/Attachments

text/plain (139 lines)

Good discussion on distribution but let's not overlook the role rising of inequality in fueling the bubble(s) since Reagan.

On Americans being debt-ridden to continue spending, unless there's rising inflation the only problem with this is when the fat cats decide to exit the implicit Ponzi process of the bubble(s).  We can argue about how much of a problem the inflation would be in principle, but not confuse what might have been with what happened to cause the current crisis.

LaJeunesse is correct we need to revise our governance regimes (formal & informal) to channel satisfaction-seeking and entrepreneurship away from the resource-dense commodity production we've had for too long.  We should be training neighborhood ombudspersons, therapists, and sex workers as well as energy conservation pros. 
 
Bread & Roses,

[log in to unmask]



________________________________________
From: AFEEMAIL Discussion List [[log in to unmask]] On Behalf Of Wray, Randall [[log in to unmask]]
Sent: Friday, January 30, 2009 1:02 PM
To: [log in to unmask]
Subject: Re: Income Distribution

Timothy:
I want to correct one error in your post: we were no where near full employment in the late 1990s. That is conventional thinking erroneously based on the discredited Phillips Curve. There were somewhere between 10million and 20 million left behind by the Clinton "rising tide" who wanted jobs but could not obtain them. At a minimum, full employment means anyone who wants a job at the "going wage" can obtain one; the going wage should be a living wage. A higher standard would be that anyone who wants to work is able to get a job in her customary line of work, at the customary wage. Another commonly used definition is that there are more job vacancy (in every line of work) than job seekers (in each line of work). I am willing to push first for an infinitely elastic supply of jobs at a basic wage and benefits package ("living wage"), and accommodating workers as best we can with respect to interests, training, education, and experience. (In other words, the jobs should be "worke!
 r ready"--taking workers as they are.) That is a low standard and easily achievable. Then we can push for more.

It is not a coincidence that the extremely slack labor markets we have had for the past 40 yrs are associated with stagnant and declining wages, deteriorating work conditions, and falling union power. As Chris said, and as Jamie Galbraith has demonstrated in a large number of empirical studies, unemployment generates inequality. It is not just the wages lost, but also that the reserve army of unemployed tips what is already a very unfair contest in favor of employers. I think you agree with all of that.

If you don't already use it, I recommend the work of Bartlett and Steele for your students--they actually went through the tax code and identified thousands of special provisions each of which was clearly written to exempt one person from taxes.

I don't think economists are very good at assessing political feasibility, so I won't argue with you about it. But based on existing tax code and history, I am skeptical that it is possible to get an effective marginal tax rate even close to the range you are talking about. If your efforts succeed, I'll applaud.

However, let me point out one thing. The main purpose of federal taxes is to a) generate a demand for the dollar (dollar = that which is necessary to pay taxes); b) reduce sin (ideally, tax revenue would be zero and we'd be sinless); and c) eliminate excessive spending that would drive the economy beyond full employment (by destroying the income that would have been spent).

I do not believe a marginal tax rate of 95% on the highest income earners achieves any of these purposes. (From the macro perspective, taking away income the rich would not have spent anyway is essentially the same as if they didn't earn it in the first place; from the micro perspective, we add in hostility and evasion and avoidance behaviors because the individuals don't look at it that way.)

If we add a fourth purpose, d) to prevent accumulation of great dynastic wealth that interferes with democracy, then I would prefer a combination of income caps and 100% death taxes on wealth over some limit. But, yes, that is a political call, although I think there are some economic arguments in favor of it, too.

L. Randall Wray
Research Director
Center for Full Employment and Price Stability
211 Haag Hall, Department of Economics
5120 Rockhill Road
Kansas City, MO 64110-2499
and
Senior Scholar
Levy Economics Institute
Blithewood
Bard College
Annandale-on-Hudson, NY 12504


-----Original Message-----
From: AFEEMAIL Discussion List [mailto:[log in to unmask]] On Behalf Of Wunder, Timothy
Sent: Thursday, January 29, 2009 5:59 PM
To: [log in to unmask]
Subject: Re: [AFEEMAIL] Income Distribution

I agree that full employment willl partially work to deal with income distribution.  However in the late 90's we had as near full employment as possible and incomes were finally only able to keep up with productivity increases.  (and I am not implying wages are based on productivity but, as a measure, the two were parrallel from the 50's till the mid 90's)  However the last 30 years of negative progress still needs to be addressed.

As for the political issues I am in complete agreement with you that the politicians will be paid off to keep the rates low.  I agree that the population feels the way you say.  I agree that the illusion of corporate "personhood" also needs to be addressed.  However all of the other ideas put forward on this list are at least as unlikely, given the current political make up, as my suggestion.  In fact I might argue MORE unlikely.  My suggestion is easily explainable and could be moved towards by a public education campaign.  Take for example Al Gore's campaign on the environment.  Clearly science has been saying global warming is real for decades however it was only through concerted populous education that the body politic began to force political hands.  The only way to move the system is through such a similar educational structure.

Creating such a political structure is possible, especially at this current moment in time.  My most recent research asking students about income distribution and taxation demonstrates that students are woefully unaware of HOW the tax system works.  I would assume the general population is even less well informed.  However once the students understand the system the opinion of the taxation system seems to change.  Its still preliminary work but it has been interesting.

Just some thoughts.

Tim
________________________________________
From: AFEEMAIL Discussion List [[log in to unmask]] On Behalf Of Niggle, Chris [[log in to unmask]]
Sent: Thursday, January 29, 2009 4:08 PM
To: [log in to unmask]
Subject: Re: Income Distribution

For what it's worth, I agree with Randy, especially with his points b and c below.  We could easily cut OASDI rates to zero and finance with general tax revenues (although there are of course political reasons why this might be difficult).  Full employment always reduces inequality in income distributions.  In every study I've seen.

Chris

Christopher J. Niggle
Professor, Department of Economics
University of Redlands
Redlands, CA 92373

________________________________
From: AFEEMAIL Discussion List on behalf of Wray, Randall
Sent: Thu 1/29/2009 12:29 PM
To: [log in to unmask]
Subject: Re: Income Distribution


Timothy: I mostly agree. Here is the problem: that Corp CEO who is getting the $35Mill bonus will be sure to devote $5Mill of it to buy enuf congressional goodwill to get an exemption in the tax code for his remaining income. Unlikely you will change the effective tax rate much by legislating higher tax rates.

Further, Americans hate "redistribution" through tax and transfer. Surveys show even low income folk believe a 95% tax rate on upper incomes is patently unfair (further, they believe they will hit that jackpot and don't want to pay such a rate).

So for political and practical reasons here is what I suggest:

a) at the upper end, income caps work better. Corporations are supposed to operate in the public interest (and in return get the fiction that they are live human beings--don't laugh too hard). So put income and bonus caps on the CEOs. Many institutions are regulated, supervised, and guaranteed. Obviously, public interest dictates income caps. Much better to prevent them from ever earning the high income than to try to take it away from them once they've got it.

b) at the lower end: jobs, jobs, and more jobs. we probably need 20 million, but with ELR the quantity floats at a fixed price--so we will find out how many. A job guarantee at a living wage with good benefits. Of course, this sets a floor and helps workers who are not in the ELR program.

c) and eliminate the payroll tax to give immediate tax relief to most Americans, some 70% of whom pay more in payroll taxes than in income taxes.

Bottoms-up income creation will work better than tops down income redistribution.


L. Randall Wray
Research Director
Center for Full Employment and Price Stability
211 Haag Hall, Department of Economics
5120 Rockhill Road
Kansas City, MO 64110-2499
and
Senior Scholar
Levy Economics Institute
Blithewood
Bard College
Annandale-on-Hudson, NY 12504

________________________________

From: AFEEMAIL Discussion List on behalf of Wunder, Timothy
Sent: Thu 1/29/2009 11:30 AM
To: [log in to unmask]
Subject: [AFEEMAIL] Income Distribution



I have been reading the conversations and I have been continuing to wonder for sometime why there has been little discussion on creating incentives to improve income distribution issues.  While reading this article I once again see the income distribution issue showing its ugly head.

http://www.nytimes.com/2009/01/29/business/29bonus.html?partner=permalink&exprod=permalink

Economists creating the "rescue package" and economists here continue to discuss how to get the economy going again.  On this list people have mentioned the underlying problem, income distribution.  However nobody seems willing to discuss the reason incomes continue to become more and more skewed.  I think many will agree that the current downturn is partially the result of aggregate demand collapsing after too many households became over extended on credit.  For 30 years the nation has put bandages on this inherent problem.  The wealthy get more income than they can expend, whereas the people who need to consume are not getting enough income to consume.

We have kept this vicious cycle going at first by bringing in more workers.  (two income families)  We then kept it going by increasing household debt.  We have now come to the end of the road.  Wray and others are suggesting government expenditures as a way to get the economy going.  Most solutions here are very Keynesian in nature.  However why does nobody seem to be addressing the fundamental problem?  That problem is how to create incentive structures that will begin to lessen the income distribution gap?

The payroll tax holiday seems interesting to me.  As does the external board, similar to the fed, designed to stabilize aggregate demand.  Heck I even like the idea of increased block grants to the states.  Many of the policies we discuss are good, traditional alternative solutions to the current problem.  Unfortunately even if any of them work it will not address the 6 ton gorilla in the room.  Income disparities are creating a situation where the wealthy have so much income they can't expend it all, and the rest of the people have too little to expend on what they need/want.

Why has nobody addressed the essential need to create a structure that gives corporate leaders incentives to be more generous to their workers.  I can think of one policy that would create this incentive quickly.  Re-establish an honest to goodness graduated income tax.  Create a tax structure that gives corporate leaders disincentives to earn more income.  If the corporate leader is going to pay 95% of extra income above the first million as taxes, then perhaps they may use corporate resources differently.  Perhaps they will channel that income into greater perks such as free cafeterias for all employee's.  By having such high marginal tax rates corporate leaders would weigh the potential for meager increases in personal wealth versus the incredible grief they will face if they try to break union contracts for instance.

Think about it from the point of view of the corporate leader.  I can spend the next year wasting my time fighting large groups of employees and I can get a bonus of 5 million dollars.  If that bonus goes from 5 million to 250k because of marginal taxes I am not going to bother.  Rather I will be more willing to be generous with employees...

Perhaps this is not the answer.  However I continue to see many people skirt the issue of income distribution, yet I have not heard much on how to address it.  In the end if that issue is not addressed all the rest of the issues are pointless.

Tim Wunder

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