Two articles from the Huffington post on the inequalities of wealth and income and the hypocrisy of the financial elite.
By Christina Wilkie and Ryan Grimm
WASHINGTON — The corporate CEOs who have made a high-profile foray into deficit negotiations have themselves been substantially responsible for the size of the deficit they now want closed.
The companies represented by executives working with the Campaign To Fix The Debt have received trillions in federal war contracts, subsidies and bailouts, as well as specialized tax breaks and loopholes that virtually eliminate the companies’ tax bills.
The CEOs are part of a campaign run by the Peter Peterson-backed Center for a Responsible Federal Budget, which plans to spend at least $30 million pushing for a deficit reduction deal in the lame-duck session and beyond.
During the past few days, CEOs belonging to what the campaign calls its CEO Fiscal Leadership Council — most visibly, Goldman Sachs’ Lloyd Blankfein and Honeywell’s David Cote — have barnstormed the media, making the case that the only way to cut the deficit is to severely scale back social safety-net programs — Medicare, Medicaid, and Social Security — which would disproportionately impact the poor and the elderly.
As part of their push, they are advocating a “territorial tax system” that would exempt their companies’ foreign profits from taxation, netting them about $134 billion in tax savings, according to a new report from the Institute for Policy Studies titled “The CEO Campaign to ‘Fix’ the Debt: A Trojan Horse for Massive Corporate Tax Breaks” — money that could help pay off the federal budget deficit.
Yet the CEOs are not offering to forgo federal money or pay a higher tax rate, on their personal income or corporate profits. Instead, council recommendations include cutting “entitlement” programs, as well as what they call “low-priority spending.” … READ MORE
By Jared Bernstein
I just read two sweeping reports on the state of income inequality in the U.S. (the second link focuses on state-level inequality) and other advanced economies. Perhaps it’s because I’ve been so ensconced in fiscal cliff discussions, but I was struck by how much more alarmed policy makers are by the budget deficit than by the inequality situation. There are reasons for that tilt — some good, some bad — but based on magnitudes of the problem, it’s far from clear that our current sole policy focus is warranted.
The first link above finds the indispensable inequality researchers Piketty and Saez reflecting on the long income inequality time series data they and others have developed for the advanced economies. Their key findings are:
– The decline in income concentration in the U.S. over the great recession was due to cyclical capital losses, not a structural change in the underlying factors driving the trend. This can be seen quite clearly by a) taking capital gains out of the income data, revealing a steady upward trend, or b) by noting the increase in inequality (share of income going to the top 10% of households) in 2010, a return to trend.
– The fact that different countries hit by the same globalization and technology advances show different inequality trends suggests an important role for political economy — policies that affect the distribution of market incomes — in these outcomes. In France and Germany, for example, the top 10% holds about 35% of national income; in the US, it’s about 50% (see figure below). “Pure technology stories based solely upon supply and demand of skills can hardly explain such diverging patterns,” write the authors, who argue that tax policies are a “promising candidate.”
– As I’ve suggested in various posts, the authors agree that higher inequality may be associated with the debt bubble and bust from which we’re still recovering, though they’re not sure as to what’s causation and what’s correlation (they take solace in the Minsky-esque conclusion that “modern financial are very fragile and can probably crash by themselves — even without rising inequality”). Me, I think in an economy where a) inequality steers growth away from the broad middle, b) credit is cheap, under-regulated, and securitized such that there’s distance between originator and final borrower, and c) as the boom progresses, risk become underpriced — well, that’s a recipe for the shampoo cycle (bubble, bust, repeat) with inequality at the core of the model. … READ MORE
By Robert Reich
I wish President Obama and the Democrats would explain to the nation that the federal budget deficit isn’t the nation’s major economic problem and deficit reduction shouldn’t be our major goal. Our problem is lack of good jobs and sufficient growth, and our goal must be to revive both.
Deficit reduction leads us in the opposite direction — away from jobs and growth. The reason the “fiscal cliff” is dangerous (and, yes, I know – it’s not really a “cliff” but more like a hill) is because it’s too much deficit reduction, too quickly. It would suck too much demand out of the economy.
But more jobs and growth will help reduce the deficit. With more jobs and faster growth, the deficit will shrink as a proportion of the overall economy. Recall the 1990s when the Clinton administration balanced the budget ahead of the schedule it had set with Congress because of faster job growth than anyone expected — bringing in more tax revenues than anyone had forecast. Europe offers the same lesson in reverse: Their deficits are ballooning because their austerity policies have caused their economies to sink.
The best way to generate jobs and growth is for the government to spend more, not less. And for taxes to stay low – or become even lower – on the middle class.
(Higher taxes on the rich won’t slow the economy because the rich will keep spending anyway. After all, being rich means spending whatever you want to spend. By the same token, higher taxes won’t reduce their incentive to save and invest because they’re already doing as much saving and investing as they want. Remember: they’re taking home a near record share of the nation’s total income and have a record share of total wealth.) … READ MORE