Why Stopping Tax “Reform” Won’t Stop Inequality


Lance Taylor over at INET:

Over the past four decades, American household incomes have become strikingly more unequal, along an unsustainable path. But as of late 2017, prospects for attacking inequality are bleak, whether or not the Republican-controlled U.S. Congress manages to pass a tax cut favoring businesses and high-income households. Fundamental changes in income and wealth distribution will require equally fundamental changes in the way the economy generates and distributes pre-tax incomes.

What is required are policies that go beyond the tax code to shift the very balance of power between workers and employers. Doing so would allow real wages to catch up to productivity and capital gains to be more equitably shared among the population. It would shrink inequality for years to come.

This paper looks at several key topics that relate to our country’s growing inequality and the ways in which it can be remedied.

First, it’s worth examining the likely macroeconomic effects of the tax package. They will be visible but small. Republican efforts will push up the federal deficit as a means to transfer funds to business and rich households. Growth dynamics sketched below suggest that the deficit and incomes of the rich cannot rise indefinitely. This analysis also shows how, over time, rising income inequality creates greater concentration of wealth, which is almost certainly on the cards. For rich households, wealth accumulation is driven by high saving rates from high incomes, capital gains on existing assets, and receipts from initial public offerings which are highly visible but quantitatively not so important. Over the past few decades, capital gains have been a main driver for wealth concentration.

More here.