Striking It Richer
Last week the American Economic Association awarded the John Bates Clark Medal to University of California, Berkley Professor Emmanuel Saez for his work on wealth and income inequality, saying in part,
[Saez's] work usefully illuminates questions concerning issues such as the appropriate marginal tax rate for high income taxpayers, the structure of income transfer programs, the treatment of capital income, and the taxation of married couples.
Striking It Rich: The Evolution of Top Incomes In The United States
I’ll pause here for a point of clarification about the “income transfer programs” mentioned in the award quote above in order to note that this term should not be understood with the connotation that today’s short-hand of “wealth redistribution” implies. Though social programs including pension and welfare benefits can be thought of as income transfer programs, so too can almost everything US tax dollars pay for from farm subsidies and tax credits for hybrid vehicles to the GI Bill and the National Endowment for the Arts.
Professor Saez’s work is intended to provide the foundation upon which policy makers design the systems that govern economic mobility in America. In his study originally released in 2003 (since updated), he suggests the commonplace notion that an extremely large percent of money in the US is concentrated in an extremely small percentage of the population. Where the study breaks ground is the detail Saez goes into in order to present the economic activity by income group. This demonstrates the marginal impact progressive tax policies have on the top 1%, while greatly improving the economic conditions for the remaining 99%. This means that the super-rich stay super-rich while the poor and middle-class are lifted out of poverty and economic peril. He contrasts this with the a period of the deconstruction of progressive tax policies to demonstrate that though these period show overall economic expansion, the expansion is concentrated in the top 1% of the population. This means that the super-rich become the uber-rich while the poor and middle-class largely see almost no change in their economic conditions.
Among the other interesting findings of Professor Saez’s research is the deconstruction of economic activity by income type (wage, capital, entrepreneurial). These findings demonstrate that with the decline of progressive tax policies, not only is economic expansion becoming more concentrated into an elite fraction of the population, the type of income earned by this group is shifting out of capital and entrepreneurial interests and into wage and salary earnings. This suggests what many American’s have become all to familiar with - exploding CEO pay. However, the research also explains that it is not a new phenomenon but perhaps a post-1980 trend that the remaining 99% of us are only now taking issue with as a result of our wages stagnating over the same period of so-called expansion.
Professor Saez’s research argues for a social component to American economic and tax policy. What good is strong economic growth when the majority of the population faces unchanging if not worsening economic fortunes? When you think about how this economic activity is generated/financed, how is this sort of growth sustainable?
“Karl Marx believed that under capitalism, the means of production change more rapidly than the relations of production (for example, we develop a new technology, such as the Internet, and only later do we develop laws to regulate that technology). Marx regarded this mismatch between (economic) base and (social) superstructure as a major source of social disruption and conflict.” - Wikipedia
Maybe I am missing the connection, but I don’t see how his research is related to a progressive tax scheme. It seems to largely show who is making the money. The graphs in his paper and copied in your article don’t have anything to do with a tax policy so how can one say what impact it has.
Saez starts his article by disclosing that household income was largely not tracked until 1960 and yet he trends back to 1913 (doesn’t that make us question where the data prior to 1960 came from?). The only solid data that compares income with tax rates was during that previous decade (1993 - 2006). I feel there are three potential problems with this:
1) The income growth he quotes in the last table is prior to taking out individual taxes (how do discount the impact of taxes while trying to argue for a particular tax structure).
2) It is unrealistic to think that any particular tax structure would have an immediate effect. I would be liberal with my definition of “immediate”-but I think the span of only two presidents is hard to call statistically significant
3) With the incredible internet boom experienced during Clinton years and the post 9/11 crashes of the Bush years, it also seems narrow-minded to point to only the tax rates as the cause of wealth accumulation.