Extreme inequality is a choice

Really nice column in the Times today from Steven Rattner about the policy choices involved in America’s high degree of income inequality.  Despite all the coverage of the issue, I had never seen a dual chart like this that makes the political choices so stark:

Gini

Wow– that’s really telling.  So, what’s going on?

Before the impact of tax and spending policies is taken into account, income inequality in the United States is no worse than in most developed countries and is even a bit below levels in Britain and, by some measures, Germany.

However, once the effect of government programs is included in the calculations, the United States emerges on top of the inequality heap.

That’s because our taxes, while progressive, are low by international standards and our social welfare programs — ranging from unemployment benefits to disability insurance to retirement payments — are consequently less generous.

Conservatives may bemoan the size of our government; in reality, according to the Organization for Economic Cooperation and Development, total tax revenues in the United States this year will be smaller on a relative basis than those of any other member country…

And income taxes for the highest-earning Americans have fallen sharply, contributing meaningfully to the income inequality problem. In 1995, the 400 taxpayers with the biggest incomes paid an average of 30 percent in taxes; by 2009, the tax rate of those Americans had dropped to 20 percent…

Lower taxes means less for government to spend on programs to help those near the bottom. Social Security typically provides a retiree with about half of his working income; European countries often replace two-thirds of earnings.

Similarly, we spend less on early childhood education and care. And another big difference, of course, is the presence of national health insurance in most European countries.

All told, social spending in the United States is below the average of that of the wealthiest countries. And other governments help their less fortunate citizens to a greater extent than we do in ways that are not captured in the income statistics. The United States, which is the only developed country without a national paid parental leave policy, also has no mandated paid holidays or annual vacation; in Europe, workers are guaranteed at least 20 days and as many as 35 days of paid leave…

Critics from the right argue that doing more to level the income pyramid would hurt growth. In a recent paper, the International Monetary Fund dismissed that concern and suggested that a more equal distribution of income could instead raise the growth rate because of the added access to education, health care and other opportunities.

Of course we are going to have inequality in capitalism, but it absolutely does not have to be this extreme.  And yes, inequality is increasing across most Western nations, but more so in the US.  In short, it does not have to be this way.  A few less feet on the yacht of a typical billionaire and all of society can benefit through better education, pre-K, infrastructure, etc.  We are making a choice about inequality in the US and we are making the wrong one.

About Steve Greene
Professor of Political Science at NC State http://faculty.chass.ncsu.edu/shgreene

3 Responses to Extreme inequality is a choice

  1. Pingback: Extreme inequality is a choice | Fully Myelinated | aynjele

  2. John F. says:

    The key to understanding this information is in what’s not shown, which is, when you factor in the true costs of what other governments are efficiently spending through collective and/or universal programs, the U.S. pays far more, we just do it privately such as through our wildly inefficient health care system and child care access. That’s the true reason working people feel so squeezed and the reason they relate so easily to the low taxes mantra that is so all-pervasive. We need to change that dialogue to let people understand all the real costs to them which they could be saving if we were to approach our collective problems collectively.

    • Steve Greene says:

      Great point!
      I’ll never forget having an argument with a student when I made the point that we could hypothetically pay $5000 more in taxes, but save $8000 in personal health insurance/care expenses. She just kept saying, “but you’re taxes would go up!” Ugh. Yes, we do need to change the dialog, but it’s not easy.

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