The dominance of the 1% is now widely accepted. What is often missed is the fact that their dominance was built on a major transformation of the U.S. economy beginning in the early 1980s and that U.S. policy, which helped to usher in that transformation, has largely been committed to reinforcing it. An NPR Planet Money post includes two charts that vividly highlight this transformation.
The chart below shows trends in the average inflation-adjusted pre-tax income for both the bottom 90% and the top 1% of the U.S. population. From the early 1940s to the early 1970s, the bottom 90%—the great majority of the population—enjoyed a steady growth in their average real income while the top 1% saw little growth (to their already substantial total).
However, beginning in the early 1980s, thanks to the intensification of globalization, privatization, deregulation, and attacks on unions and social programs, things dramatically changed. Now it was the top 1% that saw all the income gains. In fact, as the chart makes clear, the real average income of the bottom 90% has actually been in decline.
The following chart offers an even more dramatic way to see this change in relative “fortunes.” Each data point represents the average real pre-tax income of the bottom 90% and the top 1% for the given year. The vertical greenish line illustrates the fact that between the early 1930s and 1970s only the bottom 90% saw income gains. The horizontal red line illustrates how beginning in the early 1980s all the income growth went to the top 1%.
One take away: no change in policy, no change in income distribution.
Business has failed to create the jobs we need and our public policies are failing to protect those who are unemployed.
As an Economic Policy Institute report explains:
The drop in the official unemployment rate overstates the overall improvements made in the underlying labor market. The United States lost 7.8 million jobs between December 2007 and October 2010 but the working-age population continued to grow over that period. As a result, even with steady job growth in recent years, the current labor market is still short 5.6 million jobs needed to keep up with the growth in potential labor force (see Figure A).
And, as of December 2014, only 23.1 percent of unemployed workers received any state unemployment benefits (see Figure B). One reason is the nature of many of the recently created jobs: they are short term and low paying; this leaves workers without the work record or earnings necessary to draw benefits. Another reason:
since 2011 nine states have cut the maximum available number of weeks of regular UI benefit duration [to below the long-accepted norm of 26 weeks] : Arkansas, Florida, Georgia, Illinois, Kansas, Michigan, Missouri, North Carolina, and South Carolina. Except Illinois, all these states made other legislative changes to their programs which may have reduced benefit recipiency.
Times are not easy even for those lucky enough to receive the benefits they earned: As the Economic Policy Institute report notes:
Many states pay low benefits. There were 11 states with maximum weekly benefit levels of $350 or less in 2014, meaning that workers earning more than $700 a week (well below the median weekly earnings) do not get half their pre-layoff wages replaced by UI benefits. Average benefits overall were only $315 a week in 2014 with average weekly benefits below poverty levels in the poorly performing states.
My latest article, on capitalist globalization, appears in the current issue of the journal Critical Asian Studies. For a limited time the journal is making it freely available. Here is the abstract and below it a link to the article itself.
From the Claw to the Lion
A Critical Look at Capitalist Globalization
This article argues that capitalist globalization is largely responsible for creating or intensifying many of our most serious economic and social problems. It first describes the forces that drove core country transnational corporations to create a complex system of cross-border production networks. It then maps the resulting new international division of labor, in which Asian countries, especially China, import primary commodities from Latin American and sub-Saharan African countries to produce exports for core countries, especially the United States. In core countries, globalization has led to the destruction of higher paying jobs, financialization of economic activity, and stagnation. While the new international division of labor has boosted third world rates of growth, especially in Asia, it has also left the third world with unbalanced and inequitable economies. Moreover, contradictions in the globalization process point to the spread of core country stagnation to the third world. Capitalist globalization has increased third world dependence on core country consumption while simultaneously undermining core country purchasing power. The article ends by discussing a process and program of transformation that highlights the feasibility of an alternative to global capitalism as well as the organizational capacities and institutional arrangements that must be developed if we are to realize it.
The article can be read or downloaded for free here.
The corporate nature of the Trans-Pacific Partnership (TPP), a so called free-trade agreement, is becoming more obvious thanks to a recent leak of the investment chapter by Wikileaks.
While the U.S. government likes to promote agreements like the TPP as good because they lower restrictions on trade, the fact is that trade liberalization itself does not automatically improve worker and community well-being. In fact, most studies show negative consequences. Even more importantly, pure trade issues play only a small part in these free-trade agreements; they are primarily designed to boost corporate power and profits through multiple chapters, each of which limit public regulation or control over different aspects of corporate decision making.
The investment chapter of the TPP is a case in point. Here is what the New York Times has to say about the chapter:
The Trans-Pacific Partnership — a cornerstone of Mr. Obama’s remaining economic agenda — would grant broad powers to multinational companies operating in North America, South America and Asia. Under the accord, still under negotiation but nearing completion, companies and investors would be empowered to challenge regulations, rules, government actions and court rulings — federal, state or local — before tribunals organized under the World Bank or the United Nations. . . .
The sensitivity of the issue is reflected in the fact that the cover mandates that the chapter not be declassified until four years after the Trans-Pacific Partnership comes into force or trade negotiations end, should the agreement fail. . . .
“This is really troubling,” said Senator Charles E. Schumer of New York, the Senate’s No. 3 Democrat. “It seems to indicate that savvy, deep-pocketed foreign conglomerates could challenge a broad range of laws we pass at every level of government, such as made-in-America laws or anti-tobacco laws. I think people on both sides of the aisle will have trouble with this.”. . .
Under the terms of the Pacific trade chapter, foreign investors could demand cash compensation if member nations “expropriate or nationalize a covered investment either directly or indirectly.” Opponents fear “indirect expropriation” will be interpreted broadly, especially by deep-pocketed multinational companies opposing regulatory or legal changes that diminish the value of their investments.
Included in the definition of “indirect expropriation” is government action that “interferes with distinct, reasonable investment-backed expectations,” according to the leaked document.
Critics say the text’s definition of an investment is so broad that it could open enormous avenues of legal challenge. An investment includes “every asset that an investor owns or controls, directly or indirectly, that has the characteristic of an investment,” including “regulatory permits; intellectual property rights; financial instruments such as stocks and derivatives”; construction, management, production, concession, revenue-sharing and other similar contracts; and “licenses, authorizations, permits and similar rights conferred pursuant to domestic law.” . . .
All of those disputes would be adjudicated under rules set by either the International Centre for Settlement of Investment Disputes or the United Nations Commission on International Trade Law. . . .
There are . . . mitigating provisions, but many have catches. For instance, one article states that “nothing in this chapter” should prevent a member country from regulating investment activity for “environmental, health or other regulatory objectives.” But that safety valve says such regulation must be “consistent” with the other strictures of the chapter, a provision even administration officials said rendered the clause more political than legal.
One of the chapter’s annexes states that regulatory actions meant “to protect legitimate public welfare objectives, such as public health, safety and the environment” do not constitute indirect expropriation, “except in rare circumstances.” That final exception could open such regulations to legal second-guessing, critics say.
There are many other chapters in the TPP, most of which are tailored to promote specific corporate interests—for example, there is a chapter that strengthens patent protection and monopoly profits for drug companies—an outcome that flies in the face of liberalization claims.
The corporate bias in these agreements is not surprising given that corporate leaders and lobby groups are the main advisers to the U.S. trade representative.
The media’s recent attention to the TPP’s investment chapter and the growing cries of alarm by politicians is somewhat surprising given that such chapters have been part of all recent trade agreements involving the U.S., for example the Korea-U.S. Free Trade Agreement.
Corporate use of these investment chapters and their associated investor state dispute settlement mechanisms [ISDS] is intensifying as the charts below highlight.
And, since the tribunals that rule on corporate initiated suits against governments are heard by corporate lawyers, it should not be surprising that most rulings go against governments. In one of the largest, the tribunal agreed with Ecuador that Occidental Oil had violated its contract with the government but still ruled in Occidental’s favor to the tune of $2.4 billion.
Regardless of the reason, it is positive that the terms of the TPP are now sparking outrage. However, since its investment and other chapters have been regularly included in past agreements with little fanfare or Congressional opposition, we need to recognize that current cries of alarm by politicians are more the result of unexpected public disclosure than real disapproval.
If we want to defend our interests we need to take advantage of the moment and strengthen our opposition to this and other free trade agreements. But we shouldn’t stop there. After all corporate dominance of public policy is not limited to international trade and investment agreements.
President Obama continues to press for a form of fast track approval to ensure Congressional support for two major trade agreements, the Trans-Pacific Trade Partnership Agreement with 11 other countries (Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore, and Vietnam) and the Trans-Atlantic Trade and Investment Partnership Agreement with the entire European Union.
Both agreements, based on leaks of current negotiating positions, have been structured to promote business interests and will have negative consequences for working people relative to their wages and working conditions, access to public services, and the environment.
These agreements are being negotiated in secret: even members of Congress are locked out of the negotiating process. The only people that know what is happening and are in a position to shape the end result are the U.S. trade representative and a select group of 566 advisory group members selected by the U.S. trade representative.
Thanks to a recent Washington Post blog we can see who these advisory group members are and, by extension, whose interests are served by the negotiations. According to the blog post, 480 or 85% of the members are from either industry or trade association groups. The remaining 15% are academics or members of unions, civil society organizations, or government committees. The blog post includes actual names and affiliations.
Here we can see the general picture of corporate domination of U.S. trade policy as illustrated by the Washington Post.
In short, corporate interests are well placed to directly shape our trade policies. No wonder drafts of these treaties include chapters that, among other things, lengthen patent protection for drugs, promote capital mobility and privatization of public enterprises, and allow corporations to sue governments in supra-national secret tribunals if public policies reduce expected profits.
Officially, the U.S. economy has been in expansion since June 2009. Many people find this hard to believe. One reason is that wages have either been flat or falling for much of the period.
A recent study of real hourly wage trends over the period 2007 to 2014 by the Economic Policy Institute (EPI) documents this reality. The 2007 period marks the end of the previous expansion; the recession started in December 2007. The charts below highlight the results of their study.
This first chart shows that only those in the top wage percentile have enjoyed an increase in real hourly wages since 2007. Moreover, almost all groups are currently experiencing real declines in earnings. The exception is the bottom percentile and, according to the EPI, “a series of state-level minimum wage increases” is the main reason for their recent gains.
The following two charts separate the labor force by gender. Again, we see gains only for the top percentile. Men have experienced steeper declines in hourly earnings than women, although male wages remain higher than female wages.
As the EPI study explains:
It is clear that those in every education category experienced falling or stagnant wages since 2007. In fact, real hourly wages have declined for 90 percent of the workforce with four-year college degrees since 2007 (not shown). From 2000 to 2014, real wages of the 90th percentile of this group only increased 4.0 percent cumulatively.
The data do show that college graduates have fared slightly better than high school graduates since 2007. This is not because of spectacular gains in the wages of college graduates, but because college-graduate wages fell more slowly than the wages of high school graduates. Notably, despite wage declines in both 2013 and 2014, those with advanced degrees are the only ones who have returned to their 2007 real wage levels.
These trends only highlight the mean spirited nature of current attacks on unions and resistance to raising minimum wages.
The conventional wisdom is clear—our economic policies should aim at boosting profits. Success will translate into investment and jobs. Unfortunately for us, the conventional wisdom is wrong.
Profits are up and so is the stock market, but investment, job creation, and wages all remain flat. Corporate managers are just not interested in investing firm profits in new plant and equipment. They have a better use for them, one that more directly speaks to their interests as well as those of the stock holders they represent.
William Lazonick, writing in the Harvard Business Review, offers one important explanation for what is happening and why:
The allocation of corporate profits to stock buybacks deserves much of the blame [for the trends noted above]. Consider the 449 companies in the S&P 500 index that were publicly listed from 2003 through 2012. During that period those companies used 54% of their earnings—a total of $2.4 trillion—to buy back their own stock, almost all through purchases on the open market. Dividends absorbed an additional 37% of their earnings. That left very little for investments in productive capabilities or higher incomes for employees.
Why are such massive resources being devoted to stock repurchases? . . . . Stock-based instruments make up the majority of [corporate executive] pay, and in the short term buybacks drive up stock prices. In 2012 the 500 highest-paid executives named in proxy statements of U.S. public companies received, on average, $30.3 million each; 42% of their compensation came from stock options and 41% from stock awards. By increasing the demand for a company’s shares, open-market buybacks automatically lift its stock price, even if only temporarily, and can enable the company to hit quarterly earnings per share (EPS) targets.
As a result, the very people we rely on to make investments in the productive capabilities that will increase our shared prosperity are instead devoting most of their companies’ profits to uses that will increase their own prosperity—with unsurprising results. Even when adjusted for inflation, the compensation of top U.S. executives has doubled or tripled since the first half of the 1990s, when it was already widely viewed as excessive. Meanwhile, overall U.S. economic performance has faltered.
The Pharmaceutical industry is a case in point.
In response to complaints that U.S. drug prices are at least twice those in any other country, Pfizer and other U.S. pharmaceutical companies have argued that the profits from these high prices—enabled by a generous intellectual-property regime and lax price regulation—permit more R&D to be done in the United States than elsewhere. Yet from 2003 through 2012, Pfizer funneled an amount equal to 71% of its profits into buybacks, and an amount equal to 75% of its profits into dividends. In other words, it spent more on buybacks and dividends than it earned and tapped its capital reserves to help fund them. The reality is, Americans pay high drug prices so that major pharmaceutical companies can boost their stock prices and pad executive pay.
The takeaway here is that boosting profits is not the means to promote the general interest. If we want more and better jobs we need appropriate public sector investments to stimulate and restructure our economy as well as new labor supporting workplace and wage policies.
The following charts, taken from a National Priorities Project post, highlight our federal budget priorities.
As the post explains:
President Obama recently released his fiscal year 2016 budget proposal. Budgets are about our nation’s priorities: What are we going to spend money on? How are we going to raise the money we want to spend?
Though the budget ultimately enacted by Congress may look very different from the budget request released by the president, the president’s budget is important. It’s the president’s vision for the country in fiscal year 2016 and beyond, and it reflects input and spending requests from every federal agency.
Here’s a look at the overall proposed budget:
Here’s a look at the allocation of discretionary tax dollars:
Here”s a look at the relative balance of military and non-military discretionary spending over time:
Here’s a look at the structure of taxes supporting federal spending:
Syriza won the Greek election and its leader, Alexis Tsipras, is now prime minister—the Greek people showed bravery and intelligence and we should be studying as well as supporting the efforts of Syriza and the Greek people to build a responsive, democratic, and solidaristic economy.
What follows are some articles that I have found helpful in understanding current developments.
Social and economic conditions and popular responses to them in pre-election Greece:
Few in Greece, even five years ago, would have imagined their recession- and austerity-ravaged country as it is now: 1.3 million people – 26% of the workforce – without a job (and most of them without benefits); wages down by 38% on 2009, pensions by 45%, GDP by a quarter; 18% of the country’s population unable to meet their food needs; 32% below the poverty line.
And just under 3.1 million people, 33% of the population, without national health insurance. . . .
The Peristeri health centre is one of 40 that have sprung up around Greece since the end of mass anti-austerity protests in 2011. Using donated drugs – state medicine reimbursements have been slashed by half, so even patients with insurance are now paying 70% more for their drugs – and medical equipment (Peristeri’s ultrasound scanner came from a German aid group, its children’s vaccines from France), the 16 clinics in the Greater Athens area alone treat more than 30,000 patients a month.
The clinics in turn are part of a far larger and avowedly political movement of well over 400 citizen-run groups – food solidarity centres, social kitchens, cooperatives, “without middlemen” distribution networks for fresh produce, legal aid hubs, education classes – that has emerged in response to the near-collapse of Greece’s welfare state, and has more than doubled in size in the past three years.
- Audit of the public debt and renegotiation of interest due and suspension of payments until the economy has revived and growth and employment return.
- Demand the European Union to change the role of the European Central Bank so that it finances states and programs of public investment.
- Raise income tax to 75% for all incomes over 500,000 euros.
- Change the election laws to a proportional system.
- Increase taxes on big companies to that of the European average.
- Adoption of a tax on financial transactions and a special tax on luxury goods.
- Prohibition of speculative financial derivatives.
- Abolition of financial privileges for the Church and shipbuilding industry.
- Combat the banks’ secret [measures] and the flight of capital abroad.
- Cut drastically military expenditures.
- Raise minimum salary to the pre-cut level, 750 euros per month.
- Use buildings of the government, banks and the Church for the homeless.
- Open dining rooms in public schools to offer free breakfast and lunch to children.
- Free health benefits to the unemployed, homeless and those with low salaries.
- Subvention up to 30% of mortgage payments for poor families who cannot meet payments.
- Increase of subsidies for the unemployed. Increase social protection for one-parent families, the aged, disabled, and families with no income.
- Fiscal reductions for goods of primary necessity.
- Nationalisation of banks.
- Nationalisation of ex-public (service & utilities) companies in strategic sectors for the growth of the country (railroads, airports, mail, water).
- Preference for renewable energy and defence of the environment.
- Equal salaries for men and women.
- Limitation of precarious hiring and support for contracts for indeterminate time.
- Extension of the protection of labour and salaries of part-time workers.
- Recovery of collective (labour) contracts.
- Increase inspections of labour and requirements for companies making bids for public contracts.
- Constitutional reforms to guarantee separation of church and state and protection of the right to education, health care and the environment.
- Referendums on treaties and other accords with Europe.
- Abolition of privileges for parliamentary deputies. Removal of special juridical protection for ministers and permission for the courts to proceed against members of the government.
- Demilitarisation of the Coast Guard and anti-insurrectional special troops. Prohibition for police to wear masks or use fire arms during demonstrations. Change training courses for police so as to underline social themes such as immigration, drugs and social factors.
- Guarantee human rights in immigrant detention centres.
- Facilitate the reunion of immigrant families.
- Depenalisation of consumption of drugs in favor of battle against drug traffic. Increase funding for drug rehab centres.
- Regulate the right of conscientious objection in draft laws.
- Increase funding for public health up to the average European level.(The European average is 6% of GDP; in Greece 3%.)
- Elimination of payments by citizens for national health services.
- Nationalisation of private hospitals. Elimination of private participation in the national health system.
- Withdrawal of Greek troops from Afghanistan and the Balkans. No Greek soldiers beyond our own borders.
- Abolition of military cooperation with Israel. Support for creation of a Palestinian state within the 1967 borders.
- Negotiation of a stable accord with Turkey.
- Closure of all foreign bases in Greece and withdrawal from NATO.
The story behind Syriza’s victory:
Syriza’s victory has electrified the left in Europe – even moderate social democrats who have floundered in search of ideas and inspiration since the 2008 crisis. Now there is talk everywhere of “doing a Syriza” – and in Spain, where the leftist party Podemos is scoring 25% in the polls, more than talk.
But Syriza’s route to becoming Europe’s first far-left government of modern times was neither easy nor inevitable. For the past 22 days, I have been part of a Greek documentary team following its activists and leaders on the campaign trail to watch how they did it. I have seen them offering new hope to farmers on the breadline, and drumming up supplies for their network of food banks. I have watched them win over old-school communists in the dockers’ union, smarting from seeing their workplace sold off to the Chinese, and present a modern, youthful alternative to a political establishment serving a corrupt elite. And I have seen their leader, Alexis Tsipras, in action in his private office at critical moments. . . .
In the weak January sun, the mountains along the Gulf of Corinth are topped with snow. Dotted along the hillsides are villages known as political “castles”, normally so wedded to one or other of the main parties – Pasok and New Democracy – that you could navigate at election time by following the posters. But this is a troubled land; two-thirds of the vineyards and lemon groves here are technically in foreclosure. The farmers have been forced to take morgtgages, the banks are clamouring to repossess and suicides in these quiet farming towns are on the up.
Giannis Tsogkas, a 56-year-old grape grower from Assos, tells us: “[The government] pushed us into the IMF deal and all they do is obey the rightwingers. The little man will die. We keep hearing about suicides. So we tried to find somebody on the left to protect us. And we found it in Syriza.”
As night falls, the taverna in nearby Psari is full of the old and children – most of the young adults are gone. The battered faces of farmers on the breadline stare cautiously as one Syriza man delivers a Bolshevik-style oration: “Why do the IMF want to destroy us? Is it because the sun shines here? Is it because we’re a hospitable people? Do they hate southern European life?”
But, says election candidate Theofanis Kourembes, it’s not rhetoric that has turned villages like this red. “We go out and help people. When they tell us something, we listen. When they ask for help, we are here. You never see Pasok or New Democracy.”
It’s small meetings like this, miles from the main towns, that have helped turn Syriza from a party polling 4% 10 years ago to, by the last week of campaigning, a party leading on 32%.
“You journalists have come all the way up here to interview us,” says one farmer. “Syriza is the only party that did the same. They came and talked to us. If we wanted to talk to the main parties, how would we find them?”
Greece’s prime minister, Alexis Tsipras, has lined up a formidable coterie of academics, human rights advocates, mavericks and visionaries to participate in Europe’s first anti-austerity government.
Displaying few signs of backing down from pledges to dismantle punitive belt-tightening measures at the heart of the debt-choked country’s international rescue programme, the leftwing radical put together a 40-strong cabinet clearly aimed at challenging Athens’s creditors.
Syriza appears serious—much to the surprise and dismay of the European elite:
In his first act as prime minister on Monday, Alexis Tsipras visited the war memorial in Kaisariani where 200 Greek resistance fighters were slaughtered by the Nazis in 1944.
The move did not go unnoticed in Berlin. Nor did Tsipras’s decision hours later to receive the Russian ambassador before meeting any other foreign official.
Then came the announcement that radical academic Yanis Varoufakis, who once likened German austerity policies to “fiscal waterboarding”, would be taking over as Greek finance minister. A short while later, Tsipras delivered another blow, criticising an EU statement that warned Moscow of new sanctions.
The assumption in German Chancellor Angela Merkel’s entourage before Sunday’s Greek election was that Tsipras, the charismatic leader of the far-left Syriza party, would eke out a narrow victory, struggle to form a coalition, and if he managed to do so, shift quickly from confrontation to compromise mode.
Instead, after cruising to victory and clinching a fast-track coalition deal with the right-wing Independent Greeks party, he has signalled in his first days in office that he has no intention of backing down, unsettling officials in Berlin, some of whom admit to shock at the 40-year-old’s fiery start.
“No doubt about it, we were surprised by the size of the Syriza victory and the speed with which Tsipras clinched a coalition,” said one senior German official, who requested anonymity because of the sensitivity of the issue. . . .
Even as Greek stocks plunged and bond yields soared on Wednesday, Tsipras continued to promise “radical” change.
Over the past 24 hours, his government has put two big privatisations, of Piraeus port and Greece’s biggest utility, on ice, and his ministers have pledged to raise pensions and rehire fired public sector workers.
Now the euphoria in Greece has subsided, it is being matched by astonishment in Berlin and the European Union institutions.
On its first day in government yesterday, Syriza cancelled a privatisation progamme of the ports and energy sector, pledged to re-employ around 15,000 workers, and announced minimum wage and pension rises costing around 12bn euros.
The astonishment in Europe cannot be expained by lack of foreknowledge. Numerous journalists who cover Greece, including me, reported in detail what Syriza planned to do: cancel the austerty and privatisations, run a balanced budget and massively hike the tax take from the so-called oligarchs and the black economy.
The astonishment comes because all the political centre’s contingency plans come apart. The centre-right did not win, the centre-left parties formed to create a moderation mechanism on Syriza in coalition did not get asked into the government (and in the case of Papandreou’s party, To Kinima, failed to get into parliament).
By tying up an immediate coalition with a far-right nationalist party, Tsipras was able to seize the apparatus of the Greek executive faster than anybody expected. That is what drove yesterday’s collapse of Greek bank shares, and the fall on the stock exchange.
Most market analysts thought before the election that Syriza would be forced into a U-turn. As someone who has grilled all of its economics team on camera, and Mr Tsipras himself, I can report they have no intention of backing down.
Might Spain be next with a Podemos election victory?
Something is happening in Spain. A party that did not exist one year ago, Podemos, with a clear left-wing program, would win a sufficient number of votes to gain a majority in Spanish Parliament if an election were held today. Meanwhile, the leaders of the group G-20 attending their annual meeting in Australia were congratulating the president of the Spanish conservative-neoliberal government, Mr. Mariano Rajoy, for the policies that his government had imposed. (I use the term “imposed” because none of these policies were written in its electoral program.) These included: (1) the largest cuts in public social expenditures(dismantling the underfunded Spanish welfare state) ever seen since democracy was established in Spain in 1978 and (2) the toughest labor reforms, which have substantially deteriorated labor market conditions. Salaries have declined by 10% since the Great Recession started in 2007, and unemployment has hit an all-time record of 26% (52% among the youth). The percentage of what the trade unions defined as “shit work” (temporary, precarious work) has increased, becoming the majority of new contracts in the labor market (more than 52% of all contracts), and 66% of unemployed people do not have any form of unemployment insurance or public assistance.
Americans have become increasingly critical of public policy as a means of addressing social problems. Many believe that public policies do not work but the reality is that public policies are often subverted in ways that make them ineffective or even counterproductive.
Take taxes and inequality. As Danny Vinik, writing in the New Republic explains:
The vast majority of Americans—both liberals and conservatives—believe that state and local taxes should also be progressive. That’s the finding of a new report released by WalletHub Monday. The researchers surveyed 1,050 Americans on what they thought the combined rate of state and local taxes should be at various income levels. Not surprisingly, liberals want the rate structure to be a bit more progressive than conservatives do, but their responses [as the following chart shows] were relatively similar:
However the reality is quite different. State and local taxes are actually quite regressive. The Institute for Taxation and Economic Policy studied the “fairness of state and local tax systems by measuring the state and local taxes that will be paid in 2015 by different [non-elderly] income groups as a share of their incomes.” They did this state by state and, as presented below, on an overall basis. As we can see, the lower the income, the greater the state and local tax burden.
- Virtually every state tax system is fundamentally unfair, taking a much greater share of income from low- and middle-income families than from wealthy families. The absence of a graduated personal income tax and overreliance on consumption taxes exacerbate this problem.
- In the 10 states with the most regressive tax structures (the Terrible 10) the bottom 20 percent pay up to seven times as much of their income in taxes as their wealthy counterparts. Washington State is the most regressive, followed by Florida, Texas, South Dakota, Illinois, Pennsylvania, Tennessee, Arizona, Kansas, and Indiana.
- Heavy reliance on sales and excise taxes are characteristics of the most regressive state tax systems. Six of the 10 most regressive states derive roughly half to two-thirds of their tax revenue from sales and excise taxes, compared to a national average of roughly one-third . Five of these states do not levy a broad-based personal income tax (four do not have any taxes on personal income and one state only applies its personal income tax to interest and dividends) while four have a personal income tax rate structure that is flat or virtually flat.
- States commended as “low tax” are often high tax states for low-and middle-income families. The 10 states with the highest taxes on the poor are Arizona, Arkansas, Florida, Hawaii, Illinois, Indiana, Pennsylvania, Rhode Island, Texas, and Washington. Seven of these are also among the “terrible ten” because they are not only high tax for the poorest, but low tax for the wealthiest.
In short, we know how to construct tax policies that can boost equality or at least minimize inequality. The reason the overwhelming majority of state and local governments preside over regressive tax systems is primarily explained by politics, and those who benefit from those systems are more than happy to have us believe that governments are incapable of serving the public interest.