Tuesday, June 21, 2011

And the Rich get Richer

By Fuzzyone

There were two news stories that caught my eye yesterday, one in the New York Times and the other in the Washington Post, that say a lot about the current state of the U.S. economy and our discourse about it.

The Post ran a must read article about the ever increasing disparity between rich and poor. The article wraps up a bunch of recent research showing that the rich are not primarily rock or sports stars. Rather it is business executives noting that "executive compensation at the nation’s largest firms has roughly quadrupled in real terms since the 1970s, even as pay for 90 percent of America has stalled." The article also notes that the level of income inequality in the U.S is "far more unequal than the European Union and the United Kingdom. The United States is in the company of developing countries — just behind Cameroon and Ivory Coast and just ahead of Uganda and Jamaica."

It is not clear what the solution to this problem is. The article suggests that there was once a self restraint in executives which prevented them from taking such obscene pay checks while cutting pay to workers. Certainly it is no coincidence that the increase in income inequality coincided with the decline of labor unions so one solution would be stronger federal laws protecting unions and union organizing.

Another at least partial solution can be found in the Times article about efforts by big corporations to get yet another tax break, in this case a "repatriation holiday" which would allow them to bring back money that they earned overseas without paying taxes on it. We just did this in 2005 and where did the money go, not to investment or new jobs. It went to shareholders (and of course those who own stock tend to be wealthier) and, despite provisions which were supposed to prevent it, to executives in compensation.

Our leaders need to stop listening to the nonsensical claims of big business and the rich that tax cuts will make it all better. Tax cuts do not stimulate the economy and raising taxes does not cause the rich to flee. Rather than talking about cutting the budget deficit on the backs of those who are already falling behind we need to get rid of the Bush tax cuts for the rich and some of the ways in which tax policy make the rich richer, like the lower rate for capital gains and the ridiculous "carried interest" break that applies this lower rate to hedge fund managers, and reverse the steady decline in the share that the rich pay to support a society from which they are the main beneficiaries. Incidentaly, if you have any doubt that increasing inequality is a problem take a look at economist Joseph Stiglitz's recent Vanity Fair article on the subject. Rising inequality is corrosive to our society and polity in almost every conceivable way.


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