Monday, December 26, 2011
Following up on last week's post, Ayers & Edlin: Don’t Tax the Rich. Tax Inequality Itself: Freakonimics, An Inequality Tax Trigger: The Brandeis Ratio Explained, by Ian Ayres (Yale) & Aaron S. Edlin (UC-Berkeley):
A central idea behind our Brandeis tax proposal was to have a tax that is triggered by increases in inequality. Our Brandeis tax does not target excessive income per se; it only caps inequality. Billionaires could double their current income without the tax kicking in — as long as the median income also doubles. The sky is the limit for the rich as long as the “rising tide lifts all boats.” Indeed, the tax gives job creators an extra reason to make sure that corporate wealth does in fact trickle down. ...
[T]he Brandeis ratio as a measure of concentration is immediately graspable, and is more closely tied to the specific concern that a sliver of plutocrats with gargantuan wealth could distort the political process. It doesn’t take a Ph.D in economics to understand that something seismic has occurred when the average one percenter goes from earning 12.5 medians to 36 median incomes. ...Steve Silberstein has been promoting an interesting way to make the corporate income tax for specific corporations contingent on an analogous inequality ratio. As mentioned in the New Republic:
[A]nother proposal, put forward by investor Steve Silberstein, would adjust the corporate tax rate based on the ratio of CEO pay to the average worker. A company with a ratio at the 1980 level of 50:1 would pay tax at the current rate of 35%, with the rate rising for companies with a higher ratio and lower for those with a narrower pay gap.
We had briefly thought about modifying our proposal to allow one percenters to avoid a trigger Brandeis tax if they could show that their income was less than 36 times the median income of workers who produced it, but concluded that personalized Brandeis ratios would be an administrative nightmare. The Silberman corporate tax proposal is by comparison elegantly straightforward.
Our proposal starts with an out-of-the-money status quo inequality trigger as a way to promote political common ground. You can vote for a contingent Brandeis tax without voting to necessarily raise taxes. Ours is a “tax more tomorrow” idea where the relevant tomorrow may never come. Our trigger avoids the concern that we’re engaged in crude “class warfare.” It doesn’t take away any of existing inequality, it just tries to make sure that 99% share in prospective future gains of the 1%. But reasonable people could argue for either higher or lower triggers – for example, returning to a simpler time when rich people only earned 20 medians. Perhaps like with carbon emissions we could seek to lower inequality to 1990 levels by 2020.