Feb
5
Blog Post #3 – Jia Jun Wu
February 5, 2015 | Leave a Comment
I was not surprised by the trend of growing inequality. As I’ve said before, it is now a mainstream topic, and it needs to be because it is a terribly difficult situation to manage. Many factors will need to align to improve this situation due to its nature of encompassing almost all aspects of life. Income, wealth, economy, power, and politics are only a part of the equation.
Cassidy’s piece in The New Yorker paints a clear picture of the timeline of inequality as described in Piketty’s book Capital in the Twenty First Century. The global rising trends agree with most recent reports. Furthermore, Piketty’s extrapolation of inequality of the future is just as frightening. His theory that inequality will increase given that the economy doesn’t grow at a proportional rate is coming to fruition as the Eurozone continues to drag. I don’t want to see this happen, but it seems to be heading that way.
As a remedy, his proposal of a tax on wealth seemed to be a very plausible thought. I, like Krugan said, had never really considered the value of inheritance. To me it’s really a spark that just happens and goes largely unnoticed. What’s on the front page of the papers is income. Currently, the inheritance tax, I believe, is at 35%. I can’t make up my mind on whether that should be lower or higher. However, tax on capital gains should be more progressive. Considering the power large investments, such an amount would garner substantial amounts that even surpass incomes. History has shown, however, that the next generation will get its share.
Surprisingly, more people than one imagines actually once belonged to the so called 1%. Based on the income principle, Krissy Clark’s article on Martketplace explains that those who made upwards of $340,000 are classified in the top 1%. Furthermore, people constantly fall in and out of these categories based on many criteria. The two examples the article cites are a musician who gains sudden popularity and a developer whose iPhone app topped the charts. The funny thing is when the developer asked his accountant whether to take advantage of tax loop holes he was just told that he isn’t nearly as rich enough.
Meanwhile, corporations are setting up in foreign countries to avoid corporate taxes. This means more money into the pockets of corporate executives. While the CEOs’ incomes are virtually limitless in terms of growth, the wage earners’ incomes stay stagnant. It’s an impossible thing to overcome, especially when considering how politics work, as Krugan mentioned. Change would be either be tremendously slow or non-existent (though crackdown of corporate tax evasion has risen). It seems as though the majority agree that a progressive tax system is a proper tax system. What I still don’t understand is the conflict with raising the minimum wage. It would seem that it complements the goals of redistribution.
Among the policies, I found that the proposed 80% tax rate to be absurd. I side with The Economist article in saying that this would harm the economy and innovation. There would no longer be any incentive to create new businesses. The economy would slow to a point where Piketty’s theory would materialize. The article’s counterstatement of ways to broaden the ownership of capital through methods like “baby bonds” is something I would like to investigate.
