Extreme Inequality: Starting a Strategic Conversation
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Transcript of Extreme Inequality: Starting a Strategic Conversation
Extreme Inequality
Starting a Strategic Conversation
Washington, D.C.July 16, 2007
AFL-CIO Institute for Policy Studies Center for Corporate Policy Essential Information
We livein extreme times.
2
A sign of our times:Extreme sports
3
Pushing the envelope
4
Inside the Beltway, we don’t play extreme games
Maybe we should.
5
We could ‘tailwhip’ Longworth
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Or maybe we could try something really extreme
. . . like taking on extreme inequality
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How extremely concentrated has wealth in the United States become?
$16.8 trillion $15.3
trillion
Top 1% Bottom 90%
Total net worth, 2004
Source: Federal Reserve Board, January 2006
Does not include total net worth of the Forbes 400
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How did our wealth become so extremely concentrated?
Source: Congressional Budget Office, 2006
78%
-15%
Top 1% Bottom 80%
Change in share of national income,1979 - 2004
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No one who’s anyone in American political life now disputes inequality.
Not even the President.
‘The fact is that income inequality is real; it's been rising for more than 25 years.’
George W. BushState of the Economy addressNew York, January 31, 2007
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So what can we do to reverse this extreme concentration of wealth?
The conventional wisdom:
Not much
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Our reigning wisdom
To give America’s bottom 80% in 2004 the same share of the nation’s income they received in 1979 “would have required transferring $664 billion from the top 1% of households to the bottom 80%.”
“No one would suggest this is feasible or even desirable . . .”
We can’t turn the clock back on inequality
Treasury Secretary Lawrence Summers
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So are we doomed to wander forever in Ronald Reagan’s America?
13
In public policy circles today
We discuss the absence of wealth, or poverty, not wealth’s concentration.
We talk about lifting up the bottom.
We ignore the top.
14
Should we swallow this conventional wisdom?
Or has inequality in the United States grown so extreme — and dangerous — that we need to look beyond convention?
15
The reality we must faceInequality matters.
Who says?A generation
of researchers.
Environmentalscientists
Psychologists
Economists
SociologistsEpidemiologists
Political scientists
Demographers
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The more wealth concentrates
The more children in poverty
The slower an economy grows
The longer the daily commute
The shorter the lives that everyone — rich, poor, and middle — live
The more corrupt politics become
The costlier the median-priced home
The fewer dollars charities receive
The less leisure time The lower the voter turnout
The less generous the social safety net
The higher the homicide rate
The less efficiently business enterprises operate
The more environmental degradation
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The research bottom line
It’s important to lift up the bottom.
But if we’re ever going to have a more cohesive, democratic, healthy society, we can’t let people at the top keep distancing
themselves from everybody else.
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Can public policy address concentration at the top?
Narrow the gaps between CEO and worker pay
Cap the executive pay corporations can deduct from taxes at 25 times what workers receive
Address the inheritance of wealth
Reform the estate tax to include a more progressive rate structure
End incentives for executive over-compensation
Deny government contracts to companies that overpay executives
Raise the top marginal federal income tax rate
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Top marginal tax rates, today and yesterday
35% 39.6%
91%
15%20%
25%
2007 2000 1957
Taxes on ordinary and capital gains income
Ordinary Capital Gains
20
$900 $950
$1,300
$1,400
$1,700
$17 $45 $97
$213
$398
$770
$46 $46 $53 $59 $72
$276
$34 $35 $51 $60 $112
$291
Who’s enjoying today’s rates?
Sports CEOs Private Equity Hedge Funds
Taxed mostly at 15% capital
gains rate
The Blackstone Group
21
What are we rewarding?
Hard work and innovation should certainly be fairly rewarded.
But rewards have gone far beyond what almost anyone would consider ‘fair.’ $3.2
million
$25.8 million
1957 2005
Richest 0.01%Income, in 2005 dollars
22
Back to the future
891 times
179 times 175 times
882 times
1928 1955 1980 2005
Gap between the average income of the top 0.01%
and the average income of the bottom 90%
23
Americans once believed . . .. . . that smart societies do not let wealth concentrate in a precious few hands, but instead tax the wealthy to invest in opportunity for all.
‘In many countries of the free world
private enterprise is greatly different
from what we know here. In some, a
few families are fabulously
wealthy, contribute far less than they
should in taxes, and are indifferent to
the poverty of the great masses of the
people . . . A country in this situation is
fraught with continual instability. It is
ripe for revolution.’
Dwight D. EisenhowerNational Automobile
Show Industry Dinner,
Detroit, October 17, 1960
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Democracy vs PlutocracyDwight Eisenhower, like
most Americans of his day, had a world view shaped by decades of
debate over grand accumulations
of private wealth,a debate that had been
raging ever since Robber Baron fortunes
first appeared on the American scene.
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The Good Society CreedIn those debates, our progressive forbears advanced a systematic critique of concentrated wealth.
Wealth and power, progressives argued, go inseparably together.
In any society where wealth concentrates, so will power.
And societies where wealth and power concentrate never nurture policies that help average people.
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Who preached this creed?We’re not talking radicals at the political margins.
We’re talking immenselypopular figures in the mainstream
of American political life.
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People like Louis Brandeis Supreme Court justice, 1916-1939
“We can either have democracy in
this country or we can have great
wealth concentrated in the hands
of a few. But we can't have both.”
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People like Joseph PulitzerCrusading newspaper publisher
“(A)lways oppose privileged classes
. . . never be afraid to attack
wrong, whether by predatory
plutocracy or predatory poverty.”
St. Louis Post-Dispatch, 1907
29
People like Teddy RooseveltU.S. President, 1901-1909
“(T)he prime object should be to
put a constantly increasing burden
on the inheritance of those
swollen fortunes which it is
certainly of no benefit to this
country to perpetuate.”
30
People like Franklin RooseveltU.S. President, 1933-1945
“Great accumulations of wealth cannot be justified on the
basis of personal or family security. Such inherited economic
power is as inconsistent with the ideals of this generation as
inherited political power was inconsistent with the ideals of
the generation which established our country.”
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The consensus: No more John D’s
Walter Lippmann, America’s top pundit, on the 1937 death, at 97, of America’s first billionaire
“*John D. Rockefeller+ lived long enough
to see the methods by which such a
fortune can be accumulated outlawed by
public opinion, forbidden by statute, and
prevented by the tax laws . . . sentiment
has turned wholly against the private
accumulation of so much wealth."
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A much less dominant richThe top 1% share of national income
in the United States, 1913 - 1978
17.96%
23.94%
8.86%
33
With the rich less dominant . . .Politics, in the mid 20th century, actually spoke to working family needs.
Legislation significantly impacted people’s lives.
GI Bill
FHA home loans
Medicare
Food Stamps
Occupational Safety and Health Act
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Enter the mass middle classPublic policies in the mid 20th century created a America
that boomed for Americans at every income level.
Up 116%
Up 100%
Up 111% Up 114%
Up 99%
Up 86%
Bottom Fifth
Second Fifth
Middle Fifth
Fourth Fifth
Top Fifth Top 5%
Real family income growth,1947 - 1979
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The Great Public Policy U-Turn
The top 1% share of national income in the United States, 1913 - 2005
23.94%
8.86%
In mid 20th century America, public policies shared wealth.
Over the last 30 years, public policies have concentrated it.
21.83%
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Exit the mass middle classThe more concentrated our nation’s wealth,
the less lives have improved for average Americans.
Up 116%
Up 100%
Up 111% Up 114%
Up 99%
Up 86%
Down 1%Up 9%
Up 15%Up 25%
Up 53%Up 81%
Bottom Fifth Second Fifth Middle Fifth Fourth Fifth Top Fifth Top 5%
Real family income growth,1947 – 1979 vs 1979 - 2005
1947-1979 1979-200537
Average Americans are going nowhere fast
$361.02
$535.25 $581.67 $561.74
$514.24 $508.43 $544.81 $543.65
1947 1967 1973 1979 1989 1995 2000 2005
Average weekly earnings, 2005 $
38
Should we start the century over?If we simply erased the Robin-Hood-in-reverse policies
of the George W. Bush years, would we be back on track?
„I believe people are fed up with the
policies of the past six years. So many
people I talk to just want to hit the restart
button on the 21st century and redo it
the right way. And I agree with them.‟
Senator Hillary Clinton, May 29, 2005
Undoing the Bush years would reverse just one-sixth of the growth in inequality since 1979.
Brookings Institution, June 2007
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We need to be bolder
Source: Institute on Taxation and Economic Policy Tax
Model, May 2007 (preliminary)
One Modest Proposal
Set New Top Tax Rates
50% on annual income from $5 million to $10 million
70% on income over $10 million
Number of households impacted
38,410
Share of U.S. households
0.03%
Estimated revenue in 2008
$105,000,000,000
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Dare we tax the super-rich?Wouldn’t they just find loopholes?
Wouldn’t they just take their money and run?
Wouldn’t the economy tank, if rich people had less money available to invest?
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The argument: Higher rates never work. The rich always exploit loopholes.
68.4%
41.4%
21.9%
1943 WW II 1967 Vietnam 2004 Iraq
Actual share of income taxed, 25,000 highest-income Americans
Yes, the rich do find loopholes. But top rates make a difference.
Top statutory marginal rate
94%
Top statutory marginal rate
70%
Top statutory marginal rate
35%
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The argument: The rich will take their money and run if they face higher taxes.
The rich don’t need higher rates as an excuse to take their money offshore. They already do.
Tax haven abuses currently cost U.S. taxpayers
“$40 to $70 billion dollars each year.” U.S. Senate Permanent Subcommittee on Investigations, August 2006
Tax havens can be closed.
Senators Carl Levin and Norm Coleman
have introduced an eight-point plan to close them.
43
The argument: Without rich people investing, the economy will tank.
Capital formation doesn’t require wealth to be concentrated in the pockets of a few plutocrats.
Institutional investors — like pension funds — make for a powerful investing engine.
Our current concentration of wealth fuels the ‘speculative reshuffling of the ownership of corporations.’ $72.9
billion
$524.9billion
$1.5trillion
1983 1994 2006
Total annual dollar value
of U.S. mergers &
acquisitions
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The real question: Dare we not tax the super-rich?
A quarter-century from now, what sort of America do we want to see?
23.94% 21.83%
The top 1% share of national income in the United States, 1913 - 2030 27%
8%
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A last word: Plutarch on plutocracy
Isn’t it time we started talking cure?
“An imbalance between rich and poor is the oldest and most fatal ailment of all republics.”
Plutarch, ancient Greek historian
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ReferencesSlide 8: Total Net Worth, 2004. Source: Arthur B. Kennickell, Currents and Undercurrents: Changes in the Distribution of
Wealth in the U.S., 1989-2004, Federal Reserve Board, January 30, 2006. Table 11a. Available online at http://www.federalreserve.gov/Pubs/FEDS/2006/200613/200613pap.pdf
Slide 9: Change in share of national income, 1979 – 2004. Source: Congressional Budget Office, Historical Effective Federal Tax Rates: 1979 to 2004, December 2006. Available online at http://www.cbo.gov/ftpdocs/77xx/doc7718/EffectiveTaxRates.pdf
Slide 17: A comprehensive introduction to the research on the social, economic, and political impact of income and wealth concentration appears in the 2004 book, Greed and Good: Understanding and Overcoming the Inequality that Limits Our Lives by Sam Pizzigati (Apex Press). The text now appears online at http://www.greedandgood.org/
Slide 21: Sports: Jonah Freedman, The 2007 Fortunate 50, SI.com. Available online at http://sportsillustrated.cnn.com/more/specials/fortunate50/2007/index.html. CEOs: Ellen Simon, Hundreds of CEOs top $8.3M pay mark, Associated Press, June 9, 2007. Available online at http://www.usatoday.com/money/companies/management/2007-06-09-ceopay_N.htm?loc=interstitialskip. Private equity: Henny Sender, How Blackstone Will Divvy Up Its IPO Riches, June 12, 2007. Available online at http://www.equilar.com/NewsArticles/061207_wsj.pdf. Hedge funds: Alistair Barr, Simons, Griffin, Lampert earn over $1 bln in 2006, MarketWatch, April 24, 2007. Available online at http://www.marketwatch.com/news/story/simons-griffin-lampert-earn-more/story.aspx?guid=%7B55DBE196-3461-495D-8B27-DE4CA6C5641D%7D
Slide 22: Richest 0.01%. Income, in 2005 dollars. Source: Emmanuel Saez and Thomas Piketty, Income Inequality in the United States, 1913-1998, Quarterly Journal of Economics, 2003. March 2007 update of tables and figures available online at http://elsa.berkeley.edu/~saez/
Slide 23: Gap between the average income of the top 0.01% and the average income of the bottom 90%. Source: Analysis of data from Saez and Piketty March 2007 update.
Slide 33: The top 1% share of national income in the United States, 1913-1978. Source: Saez and Piketty.
Slide 34: Real family income growth, 1947-1979. Source: Source: Analysis of U.S. Census Bureau data in Economic Policy Institute, The State of Working America 1994-95 (M.E. Sharpe: 1994). Available online, through Inequality.org, at http://www.demos.org/inequality/numbers.cfm
Slide 35: The top 1% share of national income in the United States, 1913-2005. Source: Saez and Piketty.
47
ReferencesSlide 37: Real family income growth,1947–1979 vs 1979-2005. Source: U.S. Census Bureau, Historical Income Tables, Table F-
3. Available online, through Inequality.org, at http://www.demos.org/inequality/numbers.cfm
Slide 38: Average weekly earnings, 1947-2005, in 2005 $. Source: Economic Policy Institute Datazone. Available online at http://www.epi.org/content.cfm/datazone_dznational
Slide 42: Actual share of income taxed, 25,000 highest-income Americans. Source: For 2004 tax data, Internal Revenue Service Statistics of Income Tax Stats: Individual Statistical Tables by Size of Adjusted Gross Income. Available online at http://www.irs.gov/taxstats/indtaxstats/article/0,,id=96981,00.html. For the 1943 data, Fritz Scheuren and Janet McCubbin, Individual Income Tax Shares and Average Tax Rates, 1916-1950, Statistics of Income Bulletin, Volume 8, Number 3, Winter 1988-89. For the 1967 data, Janet McCubbin and Fritz Scheuren, Individual Income Tax Shares and Average Tax Rates, 1951-1986, Statistics of Income Bulletin, Volume 8, Number 4, Spring 1989. The “top 25,000” figures round off actual average rates paid by the highest 23,730 incomes in 1943, the highest 27,066 in 1967, and the highest 24,440 in 2004.
Slide 44: Total annual value of U.S. mergers & acquisitions. Sources: Thomson Financial Securities Data, Mergers & Corporate Transactions Database. Available online at http://www.allcountries.org/uscensus/882_mergers_and_acquisitions_summary.html . Statistical Abstract of the United States 2004. No. 741. Mergers and Acquisitions-Summary: 1990 to 2003. Available online at http://www.census.gov/prod/2004pubs/04statab/business.pdf
Slide 45: The top 1% share of national income in the United States, 1913-2030. Source: Saez and Piketty, for data through 2005.
For updates on extreme inequality in the United States — and the campaigns against it — check the online weekly, Too Much, published by the Council on International and Public Affairs. Available online at http://www.toomuchonline.org/
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