Can’t fix inequality with higher taxes, study says

Rich 6

 

If you care about rising income inequality in America and you think it needs fixing, don’t look to taxes as your prime tools for change, says a new study.

Boosting the top rates for high earners produces “an almost imperceptible reduction in overall income inequality,” not even if there is an effort to redistribute the money to lower-income households, according to a paper released today by economists at the Brookings Institution, which is generally considered a liberal think tank.

The study was done by William G. Gale, co-director of the Urban-Brookings Tax Policy Center and senior fellows Melissa S. Kearney and Peter R. Orszag.

They analyzed the effect of several scenarios, including raising the top income tax rate from 39.6 percent – where it is now – to 45 percent and also to 50 percent. They also looked at what it would mean to raise the top rate to 50 percent for couples with income greater than $1 million for joint filers and individuals with income of more than $750,000.

Raising the rate to 45 percent would mean $49.4 billion in added revenue, they said. Divvy that up among the households in the bottom fifth – that’s 36.1 million families – and you’d have payments of $1,370 to each household.

Raise the rate to 50 percent and you’d get $95.6 billion in revenue, the economists said. That could be divided into payments of $2,650 for each of the lowest 20 percent.

They tried other similar scenarios and wrote in their report: “The reduction in income inequality resulting from each of these tax and redistributive plans is quite modest.”

Of course, not everybody agrees that inequality is a problem. And even among those who do, not everyone always agrees that Something Should Be Done.

Realistically, higher taxes – even just limited to the top end — have been always been a tough sell in Congress. And if Brookings is right, the path to a less lopsided income would have to be through even more controversial terrain.

But many social critics have argued that inequality is not the result of simple competition and is affected by many political and economic choices the nation has made.

And while not even all liberal economists think so, some economists say that inequality is an economic drag since it piles up money that could be spent with rich people who don’t need spend it.

In which case, what policy would make sense?

he three Brookings economists ask: “This analysis … leaves us with the open and important question: if neither a substantial expansion in education nor a big increase in the top marginal tax rate would significantly affect measured income inequality, what would?”

They do not suggest an answer.

 

Reader Comments 0

15 comments
RoadScholar
RoadScholar

Payouts to the poor? What? Put it into infrastructure and jobs. Then make people who are not handicapped "work" for their welfare checks which could be increased. Also hire people to make sure that those who say they are handicapped and without job skills are really unable. Pay for job training.


This is not rocket science.

White Dinosaur
White Dinosaur

These people are not interested in "income equality", what they really want is "asset equality".  In order to have income equality, they will have to have the education, the ability to make correct moral decisions (no children out of wedlock, no arrests) and other qualities  necessary to have a high paying job.  They would much rather get a check for $2,500 as another government freebie.


k483
k483

If I were king of the world I would enact two incentives. First I would pay for their education to any university they qualify to enroll in, and then I would offer a $5k lump sum for them to participate in a paid for vasectomy our tubal ligation.

ByteMe
ByteMe

The premise is take the money and give it as a check to the poor.  That doesn't make any sense, because the point of income inequality is to change the dynamic whereby the CEOs make 10,000x the janitor only because of the board of directors that he stacked in his favor.

Instead, let's tax anything about a certain amount at higher and higher tax rates and use the money for infrastructure, which creates better-paying jobs and a reason for people to learn a good trade (while leaving the rest of us with a better infrastructure and less debt).

DumbandDumber
DumbandDumber

50+ years of HEAVY social spending in this country have helped put us in the mess we are in now (disintegrating home unit leading the way for most of the problems of poverty, lack of education, crime, etc.). How about we try something other than "more of the same" (see definition of "insanity")

ByteMe
ByteMe

@DumbandDumber 30+ years of heavy tilting of the tax code in favor of the rich have put us in the mess we are now in.  According to conservatives it hasn't worked because we keep giving money to poor people through social spending.

DumbandDumber
DumbandDumber

The tax money resulting from this should be used for nothing other than reducing borrowings. The Federal Government already spends hundreds of billions more every year than it takes in. It does, at least, settle the issue that "taxing the rich" can solve everything. Of course it cannot, there aren't enough rich people to support everyone else.


We have to learn to live with less or everyone's taxes have to be raised a great deal to support the welfare state we have already created. No need for expansion, need for reduction.

Ralph-25
Ralph-25

The taxes are needed to fix the country, not divvy up the proceeds among the poor.  Yes, the taxes would pay for military needs, infrastructure improvements and repairs, wage increases for pubic employees, healthcare, institutions including education, etc.  Are there activities that were shut down when taxation was cut in half, that have created problems in our society - e.g., long term mental health care, public hospitals, grammar schools, road construction, public transportation?  Of course.  Most of us remember when there were few homeless and public parks were not camp grounds and toilets.  Let's take back our country.  That will cost money.  It will also create jobs and improve the quality of life for all.  The Brookings Institute analysis is simple minded and fails to address the proper use of the collected money. 

Cobbian
Cobbian

This "analysis" supposes that taxes are the answer - either raising them or lowering the.  You know, like that mantra that lowering taxes creates jobs.  If that were true, after all the lowering taxes that have gone into effect since Reagan, where are the jobs?


It isn't really all about the taxes.  We got a leg up on growing the economy because we expended educational opportunities with the GI Bill.  We also grew Fbecause of the  innovation that came out of government investment in an awful lot of defense spending, including the space race.  There was also the spending on the interstate highway system, that opened up diverse markets.  Of course this lead to a huge loss in mom and pop stores and a dominance of most markets by a few corporate giants - so maybe that one backfired.  


We also grew on the fact that we had a head start on the rest of the world in productivity and manufacturing expertise, an expertise that we nicely exported and so lost our edge.


I don't know what the next steps need to be to recreate growth and opportunity for the U.S. people.  But cutting taxes isn't going to do it, and neither will, evidently, increasing taxes.  


It isn't the taxes, stupid.

Verylucrative
Verylucrative

They say only $2650, but $2650 to someone making poverty wages may make the difference of a family eating or paying the rent!  While some fat cat is laughing all the way to the bank!  Tax the daylight out of them!

50Concept
50Concept

taxes on rich people are way too low! they should be paying at least 50 or 60% of all that income in taxes and the money given to low income people and inner city development programs for minorities. I'm tired of this wealth inequality and these rich people having all that money.

Infraredguy
Infraredguy

The Democrats think there should be higher taxes on high income people ( excluding their campaign contributors ) Hillary thinks high taxes are needed to solve inequality between the Little People and her friends on Wall Street but she can't stand the tax hit.

Don't Tread
Don't Tread

They don't suggest an answer because they don't have one (that passes legal muster, anyway).