There are two main drivers of income inequality in the US.
First, the current tax system is progressive in terms of marginal rates but it is not really progressive, especially when you get to the 1% of income tax earners. The unfairness arises from things such as: rates too low (not so much on the top 10% but certainly on the top 1% - lowest among all OECD countries), the low tax rate on capital gains, passing of assets to future generation, treatment of luxury assets (like vacation homes, for example) and the absurd carried interest rates which allows hedge fund managers' incomes to be taxed at capital gains rates (!!).
I'm all for tax reform and simplification. I'd do away with separate contributions for S.S. and Medicare since the idea that it's a "contribution" is a joke anyway and go with just one flat rate, maybe two. Allowing workers on the bottom of the tax code to be refunded S.S. and Medicare and not exempting it on the higher scale is the type of fix I could support morally and fiscally.
But again I ask; does a tax code exist for the purposes of raising revenues or for “fairness.”
Second, in the last 2 decades or so there has been a stunning rise in return on capital and a corresponding lower return on labour. Plainly speaking, the rich own the capital, the poor have the labour. The rich have experienced huge returns on capital while the poor have not seen returns on their labour (work). The main drivers of this are as follows. First, international trade which has resulted in jobs, particularly manufacturing and industrial sectors, to move abroad. What does this mean? Huge returns on the corporate level (ie. returns on CAPITAL), no return on labour. Second, technology has resulted in corporations being able to split up jobs into tasks. This means that you can do with fewer workers. Again, return on CAPITAL, no return on labour.
As a result of all of this, you have the following corporate profits as a share of GDP outcome:
That's shocking! And as corporate profits rise, inequality grows.
Well now who’s only telling part of the story? Private corporations are indeed making large profits, which for workers with retirement funds invested in the stock market is a good thing.
Profits are a good thing. What is not good is that companies are sitting on their profits rather than hiring, expanding or investing in capital projects. Some 2 trillion dollars of liquid assets which greedy companies should be investing in growing and making even more money but aren’t. Why? My guess is economic uncertainty over Obamacare, tax rates and looming regulation.
Now the drivers you don’t mention. The main driver of inequity is that we live in a meritocracy which, due to technology, the licensing of professions and other factors increasingly rewards brain power and unique talents. Due to globalization, automation and immigration the value of low-skill labor is decreasing.
One example; in 1980 Nolan Ryan became the first major league baseball player to make one million dollars per year. 30 years later the average salary is well over one million dollars. Why should CEO’s, Wall St fund managers and others be different, which in no way endorses everything that goes on in boardrooms or Wall St.
There is a return on labor, just not all labor.
So then what you have is low rates of savings among Americans. Here you'll come in to tell us about everyone who overspent on a large house or who can't manage their money, but the truth is that by and large, most Americans cannot afford to save adequate amounts of money.
Why is personal savings low? For one why would you when interest rates for savings accounts are zero, held artificially low because of what would happen to our debt service costs should they rise to normal levels? Two, taxes. Mid to low income populations might save more if they were allowed to keep more of their money. Here are tax burdens and Tax Freedom Day by decade. Would I go back to 1920 levels of taxation and give up interstates, the CDC, SDI, NASA and other things that make us safer or assist in my pursuit of happiness, no. But higher taxation does come out of the family budget.
Year TFD Percentage tax burden
1900 January 22 5.9%
1910 January 19 5.0%
1920 February 13 12.0%
1930 February 12 11.7%
1940 March 7 17.9%
1950 March 31 24.6%
1960 April 11 27.7%
1970 April 19 29.6%
1980 April 21 30.4%
1990 April 21 30.4%
2000 May 1 33.0%
2012 April 17 29.2%
Which translates to relying on the government to make up the difference. In 1929, the share of government subsidy in a person's disposable income was 1%. Today, it is 20%. One fifth of an average American's disposable income comes from the government! This is what the Republicans want to cut. BUT if you cut that, then the private sector needs to step in. There are essentially two ways: by raising corporate taxes and taxes on top income earners OR by corporations voluntarily starting to pay people considerably more money such that they make a living wage (instead we have full-time Walmart employees on food stamps).
No surprise since 2/3rds of federal spending is now entitlement spending. And how much is that going up with Obamacare subsidies available well into the middle class?
But to the point, male participation rate is at its lowest point since they began taking figures in 1948. How much of this 20% is the government stepping in to supply what wage-earning fathers used to supply? Ever watch the Obama administration's "Life of Julia"— the cartoon explaining the cradle-to-grave government programs that provide for Julia's happy, successful and husbandless life?
The Life Of Julia - YouTube
You may not want to admit that there are good and poor lifestyle choices and that they contribute to income disparity but, for example, single mothers are six times more likely to live in poverty than married mothers.
Again, libertarianism and the welfare state can’t coexist for long.
The point being is that this isn't about values or gay marriage or sluts having sex outside of marriage or people not getting degrees or cohabiting before marriage or not going to Church on Sunday. It is a long process that has been punctuated by runaway corporate profits which have NOT filtered down to the lower and middle classes and the rich benefiting by virtue of holding all the capital. Every economist out there will tell you that this is not sustainable. You can keep yammering about values or you can wake up and smell the coffee and educate yourself about the statistics and the data.
Marxist yammering.
Corporations only make profits when the services or products they provide find favor with consumers, including lower and middle income consumers. By the way, what happens to the employees of a company that fails to make a profit? And profits do filter down in compensation other than wages such as health care, paid family leave as well as 401K contributions. If you think corporation X is making “runaway profits” why aren’t you on the phone buying stock in their company?
And finally, what is sustainable about a government that borrows 40 cents of every dollar they spend and has unfunded liabilities on $70 trillion. What happens to the truly needy when it all implodes?