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					Is Inequality a Problem?

What do I mean by a problem?
  – Empirical component
  – Moral component
Alms and Cox View?
Is Inequality a Problem?

Alms and Cox
  – Income mobility
  – Track individual incomes over years
  – of the lowest 20% of income earners in 1979
     • 86% move to higher group by 1988;
     • 15% make it to top tier
     • Quickest rise is among the young!
Is Inequality a Problem?

Alms and Cox- source of changes
  – Shift from blue – white collar economy
  – Increasing rewards to education & experience
Inequality is inevitable
Is Inequality a Problem?

Krugman
  – Economic Globalization – bunk! McDs
Source of Inequality
  – Values change-
     • Idolatry of CEOs Jack Welch
  – Decline of labor- 12% in unions
Consequences
  – government for the comfortable
Who Governs?

                Dahl—‖In political
                 system where nearly
                 every adult may vote, but
                 where knowledge, wealth,
                 social position, access to
                 officials, and other
                 resources are unequally
                 distributed, who actually
                 governs?‖
      2001 Bush Tax Cuts


40%                                          36%
                                 31%               33%
                   28%
30%                                    25%

20%    15%               15%
             10%
10%

0%
         $0        $6,000         $27,050    $136,750

                     Pre-2001   Bush Plan
Bush Tax Cuts

Reductions in federal income tax rates
Increase child credits, higher limits on
 Roth and Education IRAs, elimination of
 Estate Tax
Total Cost $1.3 trillion 2001-2010
After 2010, $200 billion a year
Who Benefits 2001-2010

 top 1% will receive
   – $477 billion
   – $342,472 each
 bottom 60% will receive
   – $268 billion
   – $3,251 each
 Benefits for Top 1% are back-loaded
   – get 7.3% of benefits in 2001
   – But 51.8% of benefits in 2010
2003 Bush tax cuts

$318 billion
  –   Tax breaks for married couples,
  –   Increased child credit ($400)
  –   Dividends and capital gains
  –   Last minute revision
       • families $10-26,000 not eligible for $400
                 % Reduction in Federal Tax Burden


Bottom 95%

Richest 4%

Richest 1%

             0      5        10       15       20           25   30

                        % Reduction in Federal Tax Burden
Public’s Ignorance of Tax
Policy
 Do you pay more in income or payroll taxes?
  (60%+ get it wrong)
 Bush 2003 tax proposal on corporate dividends
   – 61% didn’t know
 ―Most families have to pay federal estate tax
  when someone dies or only a few families have
  to pay‖
   – 50% most families
   – 18% don’t know
 40% said 2001 tax cut was something they
  ―haven’t though about‖
Where do Taxes come from/go?
            Federal Govt Receipts, CBO
                Taxes as % of GNP
        9.18.5
10                         7
     5.9
                     4.5       3.84.9      3.83.4      1950
 5                1.5                1.1         1.2
                                                       1970
 0
                                                       1990
     Individual    Payroll     Corporate    Other
      Income                    Income
Puzzle of Public Support

Harris Poll, June 2003
American Public
  – 42% said it would ―help the rich a lot‖
  – 10% said it would ―help themselves a lot‖
  – BUT 50% 2003 tax cut was a good thing
Conventional wisdom

American Ideology of Opportunity
Americans emphasize individual
 responsibility
Care about opportunity, not inequality
90         82             81
80                                     65              64
70                                                              61
60                                                                           44       43
50
40                                                                                                 29
30
20
10
 0




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It is the responsibility of government to reduce the differences in income between
people with high incomes and those with low incomes (% who agree)
      Percentage saying they agree with the statement:
      "The way things are in my country, people like me
     and my family have a good chance of improving our
                     standard of living."

          72
80                       61
60                                  45           40          37               36
40
20
 0

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   75       70
   70                    64         62
   65                                       60
   60                                                   52
   55                                                               51
   50                                                                              47
   45                                                                                           41
   40
   35
   30




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                     % who agree that taxes are much too high or too high
But…….
                  Is difference in incomes a …

60                                                       49.8
50                              43.2
40
30
20       7
10
 0
     Good thing              Bad thing           Haven't thought about
                                                           it
Big Question

Bartels-- Not unusual for citizens to be
  ignorant about details of public policy.
  Question is how do they deal with
  uncertainty; what intellectual short cuts do
  they use to develop those opinions?
What might explain individual’s
support for Bush tax cuts?
1. Conservative ideology
2. GOP identification
3. rich tax burden too high or low
4. poor tax burden too high or low
5. own tax burden too high or low
―unenlightened considerations of self interest‖
Hacker and Peirson

Did Americans support the Bush tax plan?
       "Do you favor or oppose Bush tax cut
                      plan?"

100%        56%
                                33%
 50%                                                11%
  0%
           Support            Oppose          Don't Know

                     Average share of respondents
                                                                                                  Medicare
100%
 90%   18               20                                 24
 80%                                      36                                                      Educ/Health Care
 70%                                                       18
 60%   32                                                        65         74         77
                        37                18                                                      Other governmental
 50%
 40%                                                                                              programs
                                          25               41
 30%   32                                                                                         Debt Reduction
 20%                    36
 10%                                      21                     25         21         19
       14                                                  16
  0%                                                                                              Defense/Domestic
                                                                            CNN/Time
                        NBC/Wall Street
       Bloomberg News




                                                                                       LA Times
                                                                 Fox News
                                                           Pew
                                          ABC/Washington




                                                                                                  Programs
                           Journal




                                                                                                  Social Security
                                              Post




                                                                                                  Tax Cut
                       Which do you prefer..

                                                  73%
80%
60%
40%               20%
20%
 0%
      "would reduce federal income "take full effect this year, and
        taxes across the board and        whould be aimed more att
      give the larges share of this tax middle income Americans and
       cut to wealtherier Americans        involve either credits or
       who currently pay the most in reductions in the payroll taxes
                          Support

80                                            70
70
60
50
40
30              24
20
10
 0
     "Rich get a bigger tax cut     "Everyone should get the
     because they pay more in         same level of tax cut"
               taxes"
Treasury Department Memo

―The public prefers spending on things like
  health care, and education over cutting
  taxes. It’s crucial that you make clear that
  there are no tradeoffs here. Roll-out events
  like this are the clearest examples of when
  staying on message is absolutely crucial.‖
Why did Congress support the Bush
 Administration’s tax cut plans despite tepid
 public support?
Why didn’t they fear electoral retribution?
The President's Agenda for Tax
Relief
      "These are the basic ideas that guide my
    tax policy: lower income taxes for all, with the
    greatest help for those most in need. Everyone
    who pays income taxes benefits — while the
    highest percentage tax cuts go to the lowest
    income Americans. I believe this is a formula
    for continuing the prosperity we've enjoyed,
    but also expanding it in ways we have yet to
    discover. It is an economics of inclusion. It is
    the agenda of a government that knows its
    limits and shows its heart."
                    — President George W. Bush
                    Design of Tax Cuts-




Hacker and Peirson, Abandoning the Middle, p. 45
                               Create Political Demand for More Tax Cuts




Hacker and Peirson, Abandoning the Middle, p. 46
Time-bombs
Sunsets
Throw Momma from the Train
Implications for Social Security
Reform
 Bartels—voters have very limited cognitive
  ability to process complicated issues
   – ―Social Security is in crisis‖
   – Demographic imbalance
   – Young people are going to get social security
 Policy elites are able to frame the discussion and
  design the policy in such a way that obscure the
  distributional consequences of policy
Jefferson on Citizenship

                  "I know of no safe
                   depository of the ultimate
                   powers of the society but
                   the people themselves,
                   and if we think them not
                   enlightened enough to
                   exercise their control with
                   a wholesome discretion,
                   the remedy is not to take
                   it from them, but to
                   inform their discretion by
                   education."

				
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posted:10/25/2011
language:English
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