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The Importance of Shrinking Income Inequality

Discussion in 'Political Zone' started by masomenos, Oct 22, 2008.

  1. masomenos

    masomenos Less is more

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    I posted this in another thread and didn't get any responses. It's something I'd like to get other people's thoughts on though, so I'm posting it in it's own thread.

    On the importance of "spreading the wealth":

    Oh, I think the idea of closing the wealth gap is important for a lot of Americans, as it should be. Over the past decade or so we've had the largest increase in economic inequality in the nations history, putting us around the same levels that we were at in the 1920's. A country's economic equality/inequality typically has a pretty close correlation with it's standard of living. During this period of increasing inequality America has seen it's standard of living decrease. In 2003 we were ranked 6th in terms of SoL. In 2005 we were ranked 10th and in in 2007 we were ranked 12th.

    Shrinking the income gap is important, right now we have one of the highest Gini coefficients, measuring income disparity, of any major developed country. If that continues to increase then standard of living will continue to decrease. Now, is the answer to tax the snot out of rich people and give there money to others? No, that's not fair. Should the wealthy have a higher tax rate then a low income family? Yes, I think they should, but it shouldn't be so high that they feel penalized for their success or like they are having to pay welfare for others. What's the solution then? I don't know, but large gaps in income distribution are bad for a country, as a whole, both in terms of economic growth and in terms of quality of life.
    -----------------------------------------------------------

    What do you think, a load of bull or a something that we do need to fix? What other ways could we shrink this economic disparity without just Robin Hooding.
  2. Kangaroo

    Kangaroo Active Member

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    There are things they can do to control it with out taxes; the reason flat taxes would be handy is to get rid of the stock option BS they use to circumvent taxes on income.

    How about not letting people be on boards of their competitor and 5 different boards and stuff like that. Do not allow executives to receive any stock options because it leads to Enron style stuff and Wall Street stuff so much of there money is based on company stock make the companies pay them a salary and only a salary.

    Then again I really do not care those guys make to much money myself and I do not care about the gap
  3. ScipioCowboy

    ScipioCowboy More than meets the eye. Zone Supporter

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    Despite popular belief, the economic policies of George W. Bush (and Ronald Reagan) have actually made the tax code more progressive, not regressive; in other words, the rich are currently paying a higher percentage of the overall federal income tax revenue than they have in a very long time.

    According to the Tax Foundation--a nonpartisan organization whose goal is educating the American public about tax policy--prior to the 1980s (when the top tax income rate was 70 percent), the richest 1 percent were paying 19 percent of all federal income taxes. Prior to the 2001 (before the Bush tax cuts), the richest 1 percent were paying 34 percent. Currently, the richest 1 percent are paying about 40 percent of total federal income tax revenues.

    Obviously, as the policies of George W. Bush have demonstrated, income inequality is not decreased when the rich are paying a larger percentage of overall tax revenues.

    And, in my opinion, income disparity--or the wealth gap, as you deem it--is not the source of concern that you may think it is. For instance, during both the 1980s under Reagan and the 1990s under Clinton, the gap between rich and poor was historically quite large; however, the income of families in every socioeconomic class--lower, middle, and upper--increased markedly.

    Consequently, in my opinion, the important issue is not the size of the wealth gap but, rather, the growth of family incomes. Are they growing in every class and at what rate?

    During the Bush presidency, the income of middle class families has actually decreased--the first decrease of its kind during a time of economic expansion in the modern era.

    In my opinion, this drop in middle class incomes is not occurring because of Bush's tax policies or the wealth gap. It's occurring because of outsourcing. The key to a healthy and prosperous middle class has always been a stable manufacturing base. Unfortunately, manufacturing jobs in the US have been trickling steadily overseas for some time now.

    http://www.taxfoundation.org/news/show/250.html
  4. ABQCOWBOY

    ABQCOWBOY Moderator Staff Member

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    I think a lot of this data is somewhat questionable. Not saying that what you are writing is questionable Mas. It's more a matter of how they are complining these statistics. People in this country are better off today then they ever have been in the history of our country. The question is, how is poverty measured? Historically speaking, poverty in the US is directly related to lose of jobs to overseas markets.

    Redistribution of wealth, so far as I know, has never proven to be succesful. The result is typically revolution, distruction, lower standards of living and eventually, reconsolidation of wealth again.

    Basically, those who can make money will make money in any system. Those who can not will eventually lose wealth to those who can and be religated to poverty once again.
  5. Doomsday101

    Doomsday101 Well-Known Member

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    I would love to see a national sales tax replace the federal income tax. There would be no way around it rich or poor and you end up paying based on how much you spend.
  6. masomenos

    masomenos Less is more

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    You know, I don't think that people are better today than they've ever been. I'll have to try to find some numbers, but relatively speaking, both to the rest of the world and to our own past, I really don't think that we're better off in 2008 than we were in, say, 1998.

    The SoL index I was using was actually the Human Development Index which measures the following:

    While it is by no means a perfect measurement it acts like "speed scores" work when looking at NFL Draft prospects. It also gains weight because if you look at other indexes you see a similar trend; growing income disparity leads to lower standards of living and decreased economic growth when measured by percentage. The reason that economic growth slows it that more wealth is concentrated in the hands of fewer people. There's only so much that the top 1 or 5% can consume but, in many cases, middle to lower middle income families could easily consume more. Think about it in terms of groceries, this is a rough analogy but it will serve the purpose.

    Say you have ten families of equal size which an equal maximum rate of consumption, which we'll set at $750 a month. Of these 10 families, 3 are only able to spend $400 a month on groceries, 6 are able to spend $550 a month and 1 is able to spend the full $750 a month with an extra $150 dollars a month that they just put into their mattress. In this case the ten families are spending $5250 a month on groceries, for an average of $525. Now, let's shrink the gap and say that the top family is only able to spend $600 dollars, with the extra $150 being distributed to the bottom 3 families at a rate of $50 per family. You don't decrease the consumption ability of the top family at all, they remain at $750 of consumption, the middle 6 families stay at $550 and the bottom three families are now consuming at $450 a month. You get a net increase in consumption and, because of that, the grocery stores see an increased profit.

    Like I said, it's a very simplistic model but it demonstrates how a reasonable tax on the wealthy can create a greater influx of money into the markets, which is, by all measures, a good thing. Like I said, I don't think that we should tax the snot out of the rich in order to "spread the wealth" but I do think that taxation can be reasonable if it's done in conjunction with some other means. What that other mean is, I don't know.

    You bring up the point that income redistribution, historically, leads to revolution but I would say that the opposite is true as well. When countries have huge gaps in wealth the lower classes, the majority, rise up. It's dangerous to go too far either way. To have efficient markets it is necessary to have three basic classes, lower, middle and upper. If you evenly distribute all the wealth then you have one class (or two if you count the corrupt officials who would become the sole managers of wealth) and if you spread the wealth too thin then you drop to two classes as well.
  7. ABQCOWBOY

    ABQCOWBOY Moderator Staff Member

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    I don't really measure this in an 8 or 10 year period, per say. I look at it and see that I am better off then my parents were. Now, I understand that this may not be the case for all but the opportuity is certainly there. In fact, had the market not crashed when it did, would there be an question that we are better off? That's an interesting question.
  8. masomenos

    masomenos Less is more

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    I would say that we still wouldn't be better off, even if the market had remained stable. The value of the dollar was already depressingly low. Unemployment wasn't bad but the relative value of wages left a lot to be desired. Or, I guess I should say that while we may be better off than our parents (which is expected as long as the economy grows), we wouldn't have been as far along as we should have been. But, like you said, this isn't just about a short period of time and I didn't mean for my OP to sound like that what I was talking about. I just used 1998 as a frame of reference. The real issues with a large gap in income would come further down the line, at some point after the tipping point had been reached and things were increasingly divided into two classes.
  9. masomenos

    masomenos Less is more

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    I'm going to reply to you eventually Scip, lol.
  10. masomenos

    masomenos Less is more

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    The rich are currently paying a higher percentage of the taxes your right, but they're also earning more and netting more, after taxes, than they ever have. That's where the huge disparity is and it's also where the problem lies. Like you point out, raising taxes on the upper class doesn't shrink the income gap unless you really tax the bejesus out of them. I think most people agree that that wouldn't be fair. However, we're still confronted will the statistical realities that large gaps in wealth are bad for the economy and bad for standard of living. So there has to be another way and, like I said, I haven't the foggiest what that other way is.

    Your right that income increased under Reagan and Clinton but that is something that is expected to correlate with economic growth. Of course with Reagan we saw the freeing of markets and with Clinton we had the tech boom that spurred the economy, and thus wages, to new heights. Outsourcing and an in-sourcing, through illegal immigration, are definitely two things that are contributing to increasing gaps, that's a very good point.
  11. SuspectCorner

    SuspectCorner Bromo

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    factcheck.org supports this, too...

    As for taxes, CBO (Congressional Budget Office) calculates that the top 1 percent paid 27.6 percent of all federal taxes, including:

    38.8 percent of federal individual income taxes


    4.0 percent of federal social insurance taxes (Social Security and Medicare)


    58.6 percent of corporate income taxes (indirectly, through stock ownership)


    5.5 percent of federal excise taxes (on such things as gasoline, tobacco, alcoholic beverages and telephones.)
    The share of taxes paid by different income levels have changed over time.


    http://www.factcheck.org/askfactcheck/what_percent_of_taxes_does_the_top.html
  12. ScipioCowboy

    ScipioCowboy More than meets the eye. Zone Supporter

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    40 percent and 38.8 percent are roughly equivalent, are they not?:p:
  13. masomenos

    masomenos Less is more

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    Wow, Scip, were you trying to pass false stats on me. Before this I assumed all of your posts were 100% accurate, now I'm thinking they may be only 98.8% accurate. Now ask yourself if that 1.2% matters. :D
  14. SuspectCorner

    SuspectCorner Bromo

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    Dude, am I not allowed to agree with you? Seriously.
  15. ScipioCowboy

    ScipioCowboy More than meets the eye. Zone Supporter

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    All I can say is, "tough crowd.":p:

    I said "about 40 percent." Suspect Corner responds, "38.8 percent."

    Wow.

    :laugh2:

    Edit: I know what he meant. It just came off as humorous.
  16. ScipioCowboy

    ScipioCowboy More than meets the eye. Zone Supporter

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    It was the highlighting. I know what you meant; I simply got a kick out of the presentation.:D

    In the future, when conversing with you, I'll always round to the nearest 100th.
  17. SuspectCorner

    SuspectCorner Bromo

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    Didn't realize I'd highlighted the wrong line until I'd already posted - had to run back, highlight "38.8 percent of federal individual income taxes", and add "factcheck.org supports this, too..." to evidence "intent" - all just to cover my bad.

    Oh, the perils of posting while intoxicated.
  18. masomenos

    masomenos Less is more

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    :lmao:
  19. burmafrd

    burmafrd Well-Known Member

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    Actually suspect I think you post better when bombed.
  20. SuspectCorner

    SuspectCorner Bromo

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    I don't believe a one of you have ever witnessed me in any other mode.

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