Vanity Fair, June 5, 2012
Q&A: Joseph Stiglitz on the Fallacy That the Top 1 Percent Drives
Innovation, and Why the Reagan Administration Was America’s Inequality
Turning Point
by Cullen Murphy
Cullen Murphy has been the editor-at-large of
Vanity Fair since 2006 and previously spent two decades as managing editor
of The Atlantic Monthly.
Q. ...
Edward Conard in his book Unintended
Consequences, who argue that extreme inequality is not only not a sign
of deep trouble but in fact is something to be celebrated. ...
A
... First, ... the evidence is overwhelmingly to the contrary: the
real income (adjusted for inflation) of most Americans today is lower than
it was almost a decade and half ago, in 1997
...
Secondly,... inequality has been shown to retard economic growth and promote
instability.
...
Thirdly, it is not true that the extremely wealthy use their money to take
innovation-driving risks. ... a much more common use of wealth is to gain
advantage in “rent-seeking.†.... Some of the wealthiest (historically, and
even today) have gained their riches by the exercise of monopoly, preventing
others from competing with them on a level playing field ...: Rent-seekers
don't create value.... They distort the economy, lowering efficiency and
economic growth.
Q ...
you offer a number of policy options
that together, over time, would redress the inequality problem...
A ...
There is simply no silver bullet, partly because there are so many different
parts to America’s inequality: the extremes of income and wealth at the top,
the hollowing out of the middle, the increase of poverty at the bottom. Each
has its own causes, and each needs its own remedies.
...
The policies that I propose in The Price of Inequality follow
directly from my diagnosis of the sources of inequality: at the top,
excessive financialization, abuses of corporate governance that lead CEOs to
take a disproportionate share of corporate profits, and rent-seeking; in the
middle, the weakening of unions; at the bottom, discrimination and
exploitation. Creating good financial regulations, better systems of
corporate governance, and laws that curb further discrimination and
predatory lending practices would all help. So too would campaign-finance
and other political reforms that would curb opportunities for rent-seeking
by those at the top.
2-4-8 Response: Inequality Made the Economy
Brittle
Consumer spending causes business to hire workers, full
employment causes better pay and benefits, and business investors earn money
from profits (not tax loopholes). If you doubt continued resilience of
American consumers consider a few tax and demographic changes in the last
few decades which have altered how the economy reacts:
- The steady entry
of women into the labor force has kept business supplied with quality
workers and kept salaries low.
- Family planning
and abortion have reduced the sheer number of consumers by over
50,000,000 with no improvement in the consumer confidence of most
families.
- Tax exempt
retirement plans have slowed the transfer of wealth but add nothing to
much needed consumer spending because IRA and 401k money cannot be
withdrawn without penalty.
- Elimination of
the tax deduction for interest on consumer loans has also made consumer
borrowing more expensive and with negative impact on the economic
recovery.
- In total, the
regressive payroll taxes and the income tax expenditures (a/k/a
“loopholesâ€) combine to drain the middle class of about $2 trillion
dollars a year.
If you believe the economy has become brittle a net
wealth tax - the nuclear option in tax reform (powerful [$55 trillion base],
efficient, fair and controversial) is the best solution. In one sentence:
Tax individual and corporate income at a flat 8% rate
(with no deductions, credits or loopholes), tax individual net wealth at 2%
(excluding $15,000 cash and retirement funds) and impose a 4% Value Added
Sales Tax (VAT) on business.
The 2-4-8 Tax Blend has the lowest rates and will
produce about $500 billion more than current federal revenue [around 18.5%
of GDP] with no need for payroll, estate, and capital gains taxes or
deferral of foreign income. A typical family would have an after tax take
home boost of about $641 per month. The economy would be stable and recover
quickly.
Eugene Patrick Devany, JD, MPA
www.TaxNetWealth.com
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