Posts Tagged ‘government’


Special mention

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Special mention

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Another distressing, but not particularly surprising, result from the study by the Pew Research Center I wrote about yesterday: most of America’s financially secure citizens (54 percent at the very top, and 57 percent just below) believe the “poor have it easy because they can get government benefits without doing anything in return.” They also think we can’t afford to do more for those in need.

America’s least financially secure, meanwhile, vehemently disagree; nearly 70 percent say the poor have hard lives because the benefits “don’t go far enough.” And, according to those at the bottom, we should do more for the needy, “even if it means more debt.”

A clearer divergence in political views between the most and least financially secure Americans won’t be found in the entire survey.





Let’s end the year with some important charts assembled by Steven Rattner.

Yes, economic growth picked up and financial markets soared to new record highs. But—and it’s a big but—wages remained stagnant (barely budging in real terms), income inequality got worse (increasing from already grotesque levels), the tiny minority at the top made out like bandits (just as they were doing before 2007), and government programs (even with a Democratic president and Senate) did little to ameliorate the effects of stagnant wages and growing inequality.

That’s what 2014 looked like in the United States. And nothing about 2015 looks to change those trends.


Belgian workers have opened a month of intermittent strike action by paralyzing the port of Antwerp and slowing train traffic through much of the country.

Monday’s protest action targeted measures by the nation’s business-friendly government to cut into employees’ income, extend working time and restrict social services.

On their first of three Mondays of regional strikes, the unions targeted Antwerp, with Europe’s second biggest port, and made sure no ships could enter of leave the docks. Port workers have been particularly angered by measures to extend the start of pensions by two years.

Port worker Frank Verhulst complained it would force them to work until the age of 67. “But it is a very hard job here,” he said.

Labor action is to culminate in a nationwide strike on Dec. 15.

market income

The new Congressional Budget Office report (pdf) on household incomes and taxes is out (the report was published this month but with data only through 2011) and a few observations are in order.

First, as we can see in the chart above, market income (that is, income from wages and salaries, business, capital gains, and retirement, before taxes and transfers) continues to be remarkably unequally distributed. It is highly skewed toward households at the top of the income distribution. For example, while households in the lowest quintile took home about $7,900 on average (or 2.2 percent of total market income), the approximately 1.1 million households in the top 1 percent had about $1.4 million on average (or 16.9 percent of total market income).

income growth

Second, over the entire period from 1979 to 2011, the growth in market income varied significantly across the income scale. Thus, for example, while cumulative growth in real (inflation-adjusted) income was 16 percent for household in the bottom quintile, it was 174 percent for those in the top 1 percent.

income shares

Third, the composition of market income changed markedly over time for the top 1 percent: the share of their income that came from capital income (excluding capital gains) fell by half (from about 40 percent to about 20 percent), while the share of their market income that came from business income surged from 14 percent in 1979 to about 27 percent in 2011. As the CBO explains,

That shift in the composition of market income for households in the top 1 percent of the income distribution probably reflects, at least in part, significant changes in the organizational structure of businesses that have occurred over the past few decades. Following the Tax Reform Act of 1986, which lowered the top statutory tax rate on individual income below the top statutory tax rate on corporate income, many C corporations (which are taxed under the corporate income tax) were converted to S corporations (which pass corporate income through to their shareholders, where it is taxed under the individual income tax) or other types of entities not subject to the corporate income tax.21 As a result, some income previously reported as capital gains and dividends (from C corporations) was instead reported as business income (from S corporations or other pass-through entities). That conversion also accelerated the realization of income, because profits of S corporations are required to be fully distributed to shareholders every year, whereas C corporations can retain their earnings.

after-tax income

Fourth, because of the decline in income-tax rates over the 1979-2011 period, the cumulative increase in real after-tax income was higher for all income groups, especially for those at the very top: the after-tax incomes of the richest 1 percent increased by 200 percent (much higher than the 174-percent increase in market income).

average before-after

Finally, while over the 1979-2011 period the cumulative growth in after-tax income was larger than the cumulative growth in market income for all income groups, the results were most dramatic for those at the top: among households in the highest income quintile, market income rose by 77 percent while after-tax income rose by 87 percent over the period.

The bottom line: income inequality in the United States is highly unequal now and has become increasingly more unequal over time, both before and after government transfers and taxes.


Robert Solow is probably right: government redistribution of income hasn’t had much of an effect on existing inequalities in the United States. So, it’s time to try something else.

“We need to think of ways to change the market determination of income,” Professor Solow told me. “How does capitalism generate inequality?”

To the extent that widening inequality is caused by the yawning gap between the epicurean pay deals in the executive suite and the stagnant wages paid to those on the shop floor, it might best be addressed at the level of the corporation, not by government. . .

To Professor Solow, that means “we have a better shot at doing something with changes in corporate governance than with direct redistribution.”

One way of changing corporate governance is to let the employees participate in determining how firms are run. It’s likely, if the major decisions in corporations were made by the workers, we’d see less much less inequality and more investment in the things that matter, such as hiring the unemployed, improving job safety, and expanding community services for workers and their families.

That kind of change in corporate governance would also increase the possibility that more of the determination of income would be taken out of the market and improve the ways the government redistributes income.

In other words, a fundamental change in corporate governance would likely improve both the distribution and redistribution of income.