Inequality is not inevitable – but the US ‘experiment’ is a recipe for divergence


Facundo Alvaredo, Lucas Chancel, Thomas Piketty, Emmanuel Saez and Gabriel Zucman in The Guardian:

The US has experienced a perfect storm of radical policy changes which have all contributed to this surge in inequality. The tax system, which used to be progressive, has become much less so over time. The federal minimum wage has collapsed, unions have been weakened and access to higher education has become increasingly unequal. At the same time, deregulation in the finance industry and overly protective patent laws have contributed to booms on Wall Street and in the healthcare sector, which now makes up 20% of national income.

These forces led to an upsurge in wage inequality in the 1980s and 90s which did, admittedly, stabilise at the beginning of this century. Since then, though, the growing importance of income derived from capital – and the growing concentration of wealth – have been key drivers of inequality. The rich are getting older, and a growing chunk of their income comes from passive capital ownership rather than active work. It’s a second Gilded Age.

The tax bill just passed by the US Senate will not only reinforce this trend, it will turbocharge inequality in America. Presented as a tax cut for workers and job-creating entrepreneurs, it is instead a giant cut for those with capital and inherited wealth. It’s a bill that rewards the past, not the future.

Critically, the bill massively cuts corporate income taxes, mainly by reducing the corporate tax rate from 35% to 20%. Whatever one believes about the long-term effects of cutting corporate taxes, it is clear that in the short and medium term, the cut overwhelmingly benefits shareholders who can reap their additional profits without any extra work.

More here.