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Wednesday, July 20, 2011

Cohen: Inequality and the Deficit

Stephen B. Cohen (Georgetown) has posted Inequality and the Deficit, 132 Tax Notes 273 (July 18, 2011), on SSRN:

The enormous increase in economic inequality in the United States should play a central role in public discourse about the federal deficit. This essay reviews statistical evidence of trends in the distribution of income and wealth in the United States. The evidence demonstrates a dramatic increase in economic inequality. The gap between the rich and poor, and between the rich and the middle class, is today wider than at any other time in the past four decades.

Table 1

Table 3

Table 4

Table 5

Table 8

Table 9

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Comments

Wealth and income creation are NOT a zero sum game. Every dollar Bill Gates earns is not snatched from the hand of some poor person. Aside from the obvious class-warfare angle, why should we care so much about relative distribution of wealth? Are we really all socialists now, coveting what our neighbor has?

Wouldn't a better focus be on the absolute gains enjoyed by each income group? If the poor are seeing a rising standard of living as well, who cares if the rich are getting rich faster? We have truly global markets now, of course it is easier to amass a mega-fortune.

A great study was just released showing that "poverty" in the USA typically includes air conditioning, color TVs, gaming consoles, and more living space than the average European. A lot of poor people even own iPhones and other Apple products, created by none other than a billionaire...

Posted by: Todd | Jul 20, 2011 5:51:20 PM

Speaking of tax fairness, wouldn't it make more sense to tabulate the degree to which the tax system steals from the rich and the producers to subsidize the indigent and indolent? Who cares how the theft compares to that of 1900? What is important is to stop the theft.
Important, for example, is how much men are taxed to subsidize women in education, breeding, health care and pensions, not how much this has increased since 1950.
As a scientist, I think it idiotic to speak of fairness in terms of percent change in wealth or income, or even of change in taxation among various strata.
A person who pays no tax one year and $1 the next has suffered an infinite increase in his taxation. Of what use is this information?
Such charts as these are mere exercises in hiding the ball. Why don't you post a chart that shows, by sex, age, race, wealth, income, etc, which groups are supporting the Nanny State and which ones are sucking at the tit? That would be information that young, well-educated, White men could actually use in deciding to emigrate.

Posted by: Malthus | Jul 20, 2011 9:41:54 PM

An interesting analysis that, due to its timing and Cohen's overemphasis on allegedly insufficient "progressivity" in the federal income tax as the primary cause of unequal wealth distribution, comes across as partisanship. I'm unpersuaded because 30 years ago I was in the bottom 10% of income earners, yet paid considerable income taxes. If I earned the same money nowadays (adjusted for inflation), I would pay far less or even no tax. My personal earnings history is not unique; rather, millions of other working citizens share this experience. Cohen conveniently neglects to reconcile his thesis to this plain fact.

Posted by: Jake | Jul 20, 2011 10:36:04 PM

That's right, Malthus. The "producer" class receives no state support at all. They would be just as well off if the government and the stability that it provides didn't exist!

Posted by: Marketplace | Jul 21, 2011 9:31:13 AM

Malthus is a complete right-wing knucklehead. Keep watching O'Riley and memorizing the Drudge Report man.

This chart doesn't compare someone who has zero and then has $1. It indicates a group, as a percentile of a gross population. Or does the scientist not understand how statistics work?

Additionally, in the frame of reference that you are speaking of, the word is teet, not tit. That information should be useful for you as a young, well-educated white man.

Posted by: Aaron | Jul 21, 2011 1:15:52 PM

What to think when an author (i) deploys five graphs with 3 different starting points and 2 different endpoints, (ii) selects endpoints that occur immediately prior to a reversal of the trend upon which his entire premise rests and (iii) uses "economic" and "income" interchangeably?

I know what I think, "next".

Posted by: Yo Gabba Gabba | Jul 21, 2011 6:20:20 PM