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Inequality Rising — All Thanks To Government Policies

Economy Memo Pad

Inequality Rising — All Thanks To Government Policies


A revealing new examination of the top 1 percent in a variety of countries brings into focus how the American government’s tax, union bargaining, inheritance and other rules widen the growing divide between those at the top and everyone else.

Four economists found that such wealthy and technologically advanced countries as Japan, France and Germany have seen growth at the top, but not the chasm of inequality created in recent decades in the U.S. and Britain.

That is significant because it means that new technologies and the ability of top talent to work on a global scale cannot explain the diverging fortunes of the top 1 percent and those below, since the Japanese have access to the same technologies and global markets as Americans. The answer must lie elsewhere. The authors point to government policy.

The paper’s authors include Emmanuel Saez, the UC Berkeley economist who has won renown for his work examining more than a century of global data on top incomes. The lead author is Facundo Alvaredo of the Paris School of Economics.

The four authors looked at four big issues to see how they drive growing inequality:

—Do lower taxes on the already wealthy, which allow them to save more, make their fortunes snowball?

—Do current rules redistribute more wealth to executives and managers, perhaps at the expense of the companies they run?

—Does inherited wealth, which is on the rise in Europe as well as the United States because of tax rules that make it easier to pass fortunes to heirs, reinforce inequality?

—Does having income from work juice the growth of fortunes, because the savings can be reinvested rather than spent?

Cutting tax rates has become the signature issue for Republicans in Washington. Whatever economic issue arises, their answer is to lower tax rates, which they say will spur the economy.

What the authors find should raise questions about that mantra. They looked at tax rates and economic growth in advanced countries around the world:

If we look at the aggregate outcomes, we find no apparent correlation between cuts in top tax rates and growth rates in real per capita GDP. Countries that made large cuts in top tax rates, such as the United Kingdom or the United States, have not grown significantly faster than countries that did not, such as Germany or Denmark.

dcj graphic

The authors begin with a point I have been making since before my book Perfectly Legal in 2003: Under current government rules, an ever-greater share of economic resources must flow to the top over time because those rules subtly redistribute upwards. As the authors put it in their paper:

There was a fall in the top 1 percent share in 2008‐2009, but a rebound in 2010. This would be consistent with the experience of the previous economic downturn: Top income shares fell in 2001‐2002, but quickly recovered and returned to the previous trend in 2003‐2007.

This trend is also seen in Britain, but not so much in countries that have higher tax rates on top incomes, rules that allow workers to bargain through unions, and other policies that America had in the New Deal era that ended with Reagan. As the authors write:

To us, the fact that high‐income countries with similar technological and productivity developments have gone through different patterns of income inequality at the very top supports the view that institutional and policy differences play a key role in these transformations. Purely technological stories based solely upon supply and demand of skills can hardly explain such diverging patterns.

David Cay Johnston

David Cay Johnston won a 2001 Pulitzer Prize for his coverage of taxes in The New York Times. The Washington Monthly calls him “one of America’s most important journalists” and the Portland Oregonian says is work is the equal of the great muckrakers Ida Tarbell, Lincoln Steffens and Upton Sinclair.

At 19 he became a staff writer at the San Jose Mercury and then reported for the Detroit Free Press, Los Angeles Times, The Philadelphia Inquirer and from 1995 to 2008 The New York Times.

Johnston is in his eighth year teaching the tax, property and regulatory law at Syracuse University College of Law and Whitman School of Management.

He also writes for USA Today, Newsweek and Tax Analysts.

Johnston is the immediate past president of the 5,700-member Investigative Reporters & Editors (IRE) and is board president of the nonprofit Investigative Post in Buffalo.

His latest book Divided: The Perils of Our Growing Inequality an anthology he edited. He also wrote a trilogy on hidden aspects of the American economy -- Perfectly Legal, Free Lunch, and The Fine Print – and a casino industry exposé, Temples of Chance.

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  1. TZToronto May 31, 2013

    The 99% would say that income inequality is a bad thing. The 1% would ask, “What’s the problem here?” The very wealthy have no interest in income inequality. After all, the top 5% of income earners pay about 57% of all income taxes–but that’s a red herring. They pay that much because they make so much more than the average worker. If they want to pay less in tax, then they should be pushing for a more equitable distribution of the wealth. Instead, they push for lower taxes on their income so they can keep more of it. .

    1. Allan Richardson June 1, 2013

      That’s when they actually DO pay their taxes! They demonize the IRS as an evil force that extorts more taxes out of everyone (not true; if they find out you made an error in THEIR favor, they correct it and send you a check, which has happened to me twice), when they REALLY fear it coming after THEM for something that was borderline legal.

      On the attitudes of people to breaking laws, it is significant that the Talmud advises EXTRA effort to be SURE you are not breaking any commandments, such as: NOT ONLY not eating chocolate covered ants, but WASHING your produce carefully to make sure you do not ACCIDENTALLY swallow any bugs. The attitude toward CIVIL laws is the opposite: get as close as you can to the line, and if caught, dispute whether the law really MEANT to outlaw what you did.

      By the way, I believe the IRS was RIGHT in looking at the Tea Party “charity” applications, but wrong (scared to do right, actually) in eventually approving them. When a building has a sign on it that says “ROBBERS HIDEOUT” you suspect that it is a robbers’ hideout; when the name of a “charity” includes “Tea Party” it is not likely to be in the business of delivering beverages to people in a disaster area!

    2. Betta June 1, 2013

      “more equitable distribution of the wealth.”

      WHAT? How about pulling your own freaking weight instead of expecting to be handed part of the fruits of somebody else’s labor? You guys freaking kill me thinking you are owed what you did NOT earn.

      I live around folks like you. They would never admit they are Marxist socialists. Anything that ain’t nailed down they think is free for their use. Doesn’t matter to them that somebody else paid for it. I had to lock up most of my belongings to keep them from just freaking walking off with my sh*t thinking they can just pick up my stuff and use it at their leisure.

      I WORK to afford the things I need or want and I am NOT into socialism. I’m into pulling your own freaking weight!!!!!

      Sick to death if you freaking LEECHES! And that is EXACTLY what you ALL are…LEECHES! The only way I know to put a stop to you outrageous LEECHES is to tell you NO every time you ask to use my phone and other LEECH activities, such as “do you got any of this?, got any of that?, can I use your this that and any thing else you got? NO!!! Buy your OWN!!!!


      1. CrankyToo June 1, 2013

        Ease up, Scumbag. Most of the least fortunate among us are indeed pulling their weight. In fact, most are pulling way more than their weight – just to survive. And in the main, they pay higher taxes as a percentage of income than do the elitists you seem to admire so richly.

        That’s not to say that there aren’t some who are gaming the system, and if the system needs improvement to catch and punish the gamers, then that’s a fair criticism. And that’s where our efforts should be focused – not on cutting the legs out from underneath everyone else. Taking from our poor to give to our rich is the Repugnican prescription for everything that ails us – but in actuality, it’s the impetus for the destruction of an American society that was progressing nicely until about 30 years ago.

        Most of Mitt Romney’s 47% are just decent, hard working people trying to survive in a game that’s rigged against them. To suggest that they’re Marxist socialists who expect to be handed the fruits of somebody else’s labor is classist, and just plain ignorant.

        I don’t care what the system is, or what the game is, one thing’s for certain, nobody’s gaming the system like the people at the top – the one’s who can afford to buy politicians to grease the skids for them and those like them. As the saying goes, a man with a briefcase will steal more money than any man with a gun.

        I don’t know what “folks” you live around, but you obviously don’t live anywhere near poor folk because if you did, you’d be a little more gracious, you POS.

      2. davidcayjohnston June 1, 2013

        Columnist here….

        @ Betta, you seem to be unaware that the official government records show that we tax the poor and middle class to give to the richest among us.

        State and local governments give corporations $225 a year for every man, woman and child including $1.4 billion for the multi-billionaire hereditary ruler of Abu Dhabi http://blogs.reuters.com/david-cay-johnston/2011/11/01/a-gift-from-ny-to-abu-dhabi/

        In 2009 six people who make $200 million each legally paid NO federal income tax, as an IRS report shows.

        I have shown how many people have built billion-dollar fortunes without paying ANY taxes or tiny amounts. It is all in the public record and i have been digging it out of that record and reporting on it for about two decades.

        We have a serious problem with leeches, but the public record shows quite clearly that they are in the political donor class, the people who rent and buy politicians to get laws passed that subtly make them richer while diminishing your wallet. My three books on this will show you from the official record the facts. I hope you read PERFECTLY LEGAL, FREE LUNCH and THE FINE PRINT.

        And let me know what you think about the industry I tell about that in 1986 got it self exempted from the corporate income tax, and two decades later got a regulation adopted forcing customers to pay it not just the 35% tax on its profits, but the “grossed up” 54% tax that it does not pay. How do you like paying the taxes of other people, taxes they get to keep?

        Or how about the more than 2,700 large companies that legally keep the state income taxes withheld from their workers paychecks? Maybe you work for one of these companies and are (without your knowledge unless you read my books and columns) being taxed by your boss. GE, Ford, Citibank, Rupert Murdoch’s empire are all getting these deals, which no government requires be disclosed to the workers.

        Leeches, yes, just not where you imagine.

        1. TZToronto June 1, 2013

          David — Somehow I don’t think that Betta is going to read what you’ve written. Some people see only what they want or expect to see. The fact that research debunks conventional wisdom means nothing when it conflicts with deeply held–but erroneous–beliefs. Thanks for the info here.

          1. davidcayjohnston June 1, 2013

            I never give up trying to open minds, now matter how much they seem to be closed. Change takes time. Suffrage took 72 years, child labor laws half that…
            We can change our current policies, but it will only be done through perseverance, pointing out facts and not giving in to cynicism, deniers or paid liars.

          2. Betta June 2, 2013

            Looks like you were WRONG TZ. Wonder what else you are wrong about?

          3. Fern Woodfork June 2, 2013

            Ryan, Bachmann, Boehner Most Of The GOP Tea Party Members All Got Help (MONEY)From Our Government Then That Makes Them Leeches Too BITCH!!!

        2. Fern Woodfork June 1, 2013

          You Should Know By Now Betta Is One Of National Memo Tea Bagging Racist Pond Scum Troll, You Are Just Wasting Your Time Trying To Explain Anything To Her!! She Lives By Fox Fake News And Love Rush Limpballs!! Betta Has Been Drinking Way Too Much Venom Sold To Her By The GOP/Tea Party American Taliban Snake Oil Salesmen Now Shes Just Brain Dead!!

          1. BDC_57 June 2, 2013

            You got that right my freind

          2. Betta June 2, 2013

            So’s your mutha, BITCH! Just speaking your kind of language you understand, you ignorant cow. When your “messiah” obozo gets thrown under the bus, which should be soon now, make sure you are with him. You are an enemy of the USA.

          3. Fern Woodfork June 2, 2013


        3. Betta June 2, 2013

          Well, “Mr. Columnist”, I’m talking about the horse’s head and you’re talking about its ass.

          I wrote that I am sick of leeches who always got their freaking hands out palms up. People who DON’T pull their own weight, people who sit around waiting for things to be handed to them. People who DON’T contribute a damn thing to nothing. Just take up space and gather dust.

          As an avid reader, no, I’ve never read your books or your column. Not interested. But thanks anyway.

          1. Fern Woodfork June 2, 2013

            If You So Sick Why Don’t You DDD Dig Dirt And DIE!! Nasty Stinky BITCH!!!! FUCK YOU AND YOUR NO GOOD ASS GOP/TEA PARTY OF TERRORISTS AND TRAITORS!!!!

      3. ralphkr June 1, 2013

        Gee, Betta, I am sure that your neighbors must be ultra-Conservative Uber-Christians since they certainly act like the ones I knew from where I was born and lived for more than 20 years. They all belly ached about FDR & the other commies while sucking up every Federal handout they could get (CCC, WPA, new court house, Post Office, schools, roads, and a bridge) while claiming bitterly that they deserved more. I left that state over 50 years ago and where I live now a neighbor, a contractor, keeps forgetting to close his garage at night so all those expensive tools are visible under the lights to any passerby and he has NEVER had anything taken in the last 12 years. Admittedly, our road is 5 miles from the nearest town and is a dead end with only 9 homes but there seems to be a fairly steady number of strange cars passing by with people checking to see if any of the houses are for sale every week.

        I realize that you must hold me in contempt since I am one of those leeches who now lives on a small pension and my much larger income from my investments. Compared to when I was busting my hump every day my income is far, far more now that I never lift a finger in paid labor. Yep, I am a leech, like Romney & Ryan only on a much smaller scale. I acquired my investments by working long hours including weekends & holidays (one year I averaged over 145 hours a week on the clock and only slept in a bed 1 day the entire year) and by not buying a new car every year or a new house every five years but keeping my house for 21 years and cars & trucks for from 5 to 18 years which highlights just how un-American my activities were.

        My guess is that since you are posting here you must work or have worked for a living so tell me: How does it feel to bust your hump for $20 to $40 an hour knowing that the big bosses you never see make as much in a month as you shall gross in 60 to 117 years?

        1. Fern Woodfork June 2, 2013

          You Are In No Way A Leech My Friend Screw What Betta The Binder Bitch Is Saying !! Betta Like lana ward And Bozo The Troll Are Just Full Of Shit!!! They Need To Go To Their Own Web Site With the Other Tea Bagging Turds!!!

          1. ralphkr June 2, 2013

            Thank you, Fern, but there are those that definitely consider people such as myself a leech because I no longer punch a time clock. I remember a few decades ago when my mother was still alive and the Democrats wanted to put a 10% tax surcharge on unearned income. My mother told me that she thought that was a wonderful idea and that it should be a lot more than 10%.

            She almost had a conniption fit when I told her that 100% of her income would be considered “unearned”. She protested that she and my dad had worked for years and had earned their SS benefits and their savings. She was astounded when I asked her if she punched a time clock and then I told her that any money acquired by any action other than actively working is considered unearned income, i.e., pensions, SS, savings & investment income is ALL unearned income. So 100% of her income and 20% of my income was unearned income and today 100% of my income is unearned because it consist of a small pension plus investment income. No. I do not get SS or Medicare because of too many years in SS exempt jobs.

          2. Fern Woodfork June 2, 2013

            No Doubt People Like Betta Pay No SS Taxes Nor Pay Into Pension More Than Likely Been Working Under The Table Seem Like To Me!!! So They Got NOTHING Coming So In Their Twisted Mind People Who Get SS Or Pensions Are Leeches!! SCREW THAT TROLL!!!

          3. ralphkr June 2, 2013

            I have noticed that jobs that I had in the 40s and 50s that were SS exempt are now subject to SS.

          4. Betta June 2, 2013

            WRONG! BITCH!

          5. Fern Woodfork June 2, 2013


      4. Russell Byrd June 4, 2013

        Then do us all a favor and JUMP YOUR LAZY USELESS ASS OFF A BRIDGE. We do the work that makes the money YOU STEAL. A lot of us are tired of it. VERY FREAKING TIRED. You are the leech. A big multi-mouthed leech that sucks the blood out of the ass of the working public. Go to Hell. I hope you do so soon. You will wind up there anyway, so sooner the better.

  2. Dominick Vila June 1, 2013

    The need to preserve and, if possible, expand the schism between the haves and the have nots has been the centerpiece of the Republican agenda since President Obama was first elected. The focus shown time and again by our conservative friends has been on ensuring the continuance of irresponsible tax breaks that benefit the wealthy at the expense of the poor, and that resulted in the worst economic crisis since the Great Depression. Not surprisingly, the justification for reductions in government revenues, the chimera that more money in the pockets of the elite would result in increased investment and job growth, only proved to be true in faraway lands, while creating misery where it was supposed to flourish.

    1. Ford Truck June 1, 2013

      You say that expanding the “schism between the haves and the have nots has been the centerpiece of the Republican agenda since President Obama was first elected.”
      That has been their goal since Reagan! Look at Reagan’s “trickle-down” economics, look at the economic policies and tax “cuts” of both Bushes. During those years, even those some administrations, every tax cut favored the rich, and even when a very few taxes were increased, the burden was primarily on lower incomes, thereby making the rich richer.

      Then you say the problem is that “we are the problem for allowing the elite to get away with it at our expense.” That could not be said more accurately!! I hope the revolution starts in my lifetime so I can be part of it!!

      1. midway54 June 1, 2013

        You are correct. The sainted Ronnie, first of the more modern historical presidential stooges for the plutocrats, began the slide down the slope by starting the war against the middle class and their labor unions and opened the treasury to his fatcat donors and pals via obscenely deep tax cuts, which continues to this day. Kevin Phillips, a consultant to Nixon,registered as an Independent when Ronnie and his henchmen showed up (as did I when I was then an Eisenhower moderate). Kevin spent some years and several books correctly bashing and documenting Reagan’s policies that brought the party down to what it is today. It is a political cesspool of extreme right wing nutcases supported by ranting media propagandists and cheering, ignorant dupes and yahoos even while unions and the middle class are disappearing and moderate republicans are extinct.

      2. Russell Byrd June 4, 2013

        Historically, that policy has been in place since the death of Lincoln and the end of the Reconstruction Period. The Republican party has had ups and downs with relatively good presidents such as Theodore Roosevelt. However, rather than name the differences in individual presidents, I will point out that Republican policy has always favored the rich, first and foremost. The only exception was Lincoln. Lincoln complained constantly about the capitalist predators while trying to prosecute the Civil War. Notice the great increase in those that would discredit and defame Lincoln? All part of the same evil that is trying to enrich the greedy and destroy the rest of us to do it.

    2. CPAinNewYork June 1, 2013

      Mr. Vila:
      Our “…conservative friends”? I guess that’s just a figure of speech. We’re in a class war and the Republicans aren’t my friends.

      1. Dominick Vila June 2, 2013

        A more accurate term would have been “cousins”, because in spite of our ideological differences we are all Americans.

        1. Russell Byrd June 4, 2013

          Agreed, but it seems many of these people would rather not be “Americans.”

  3. Eleanore Whitaker June 1, 2013

    The real problem isn’t just greedy money grubbers living like corporate socialists off tax subsidies. The real problem is mired in ideology that seeks to destroy what the US Bill of Rights insured for all Americans. All of the BS about “smaller government” via the hiring of crony capitalists is solely predicated upon an ideological agenda that intends the destruction of democracy as the Founding Fathers intended it and wrote it. A two class system in the US isn’t democracy. Particularly when one of those classes considers itself more valuable as human beings (self-important dungheads) and “more” entitled to wealth than the other class. Time to take the blowhard elitists down a few pegs…At least down to earth where they must face the realities that consumers, taxpayers and their employees are not their choice serfdom. Things will change only when the silent majority speaks louder than the bull male dominators in government.

    1. ajghbg June 1, 2013

      I think the revolution will come in about 10 to 15 years and it will be sudden and make Syria and Egypt look like a picnic. One thing with all the weapons in this country and the cover of international terrorists, the home grown ones and it only took less than 5% for the American Revolution will vote with their weapons because with gerrymandering and bought and pay for Senators and Congressmen the middle Class vote means nothing and absolutely little effect.

      The greed in the 1% will be repaid as it was in the French Revolution because most jobs creation is for non skilled jobs paying nothing . This will end when the people revolt. The influence of the unions saved this country in the Great Depression but collective bargaining will soon be illegal and it will be illegal to even ask for a rise, hence it will only last so long and done!

      1. Allan Richardson June 1, 2013

        The majority of private arsenals are owned by people who have been duped into APPROVING the agenda of the 1% even though they may be near the bottom of the 99%, so that they are more likely to fight on the WRONG side of the revolution, while the 99%ers (and a few righteous 1%ers) who understand the problem and WANT to solve it are not the type who are into gun collecting or want violence.

        1. Don’t count on the liberals not being gun owners, many liberals have guns for self-defense. I am one of them.

          1. Ford Truck June 1, 2013

            I’m with you there! I am considered very liberal by most of my friends, and I am armed to the teeth! I have more than 30 weapons, including high powered sniper rifles, AR15s and shotguns. Thankfully, before the ammo all disappeared, I bought tons of it. I haven’t added it up, but my guess would be I have more than 50,000 rounds, not counting the several cases of .22lr ammo I have.

            I was trained by the Marines, did 2 tours in ‘Nam, and I am ready for the revolution!

          2. Russell Byrd June 4, 2013


          3. Fern Woodfork June 2, 2013

            I’m One Too My Friend :-)!!!

        2. Russell Byrd June 4, 2013

          But there is a point. The “warheads” with all the guns forget that the “silent majority” of gun owners are more afraid of them than anything. “They” will have a bumper crop of weapons, but “we” will have even more. What they have the most of is big mouths and a lot of wind.

      2. Archie's Boy June 1, 2013

        What revolution? If it comes with the Repubs in charge of everything, we’ll go to martial law for good, the military will be everywhere, due process will be gone, and that will be that.

        1. Ford Truck June 4, 2013

          Actually, considering that the vast majority of the military is composed of members raised in the poor and lower middle-classes, how sure are you that they will follow orders to fire on their own people?

          1. RobertCHastings June 4, 2013

            They did it at Kent State in Ohio in the early 70s.

      3. RobertCHastings June 4, 2013

        When enough people develop awareness, as you apparently have, of just how this country’s government actually functions, there will be no need for a violent revolution. Once the police find out that they have been used as the dupe of the wealthy in suppressing dissent, there will be no need for violence. And bear in mind the old quote, “when you pursue revenge, dig two graves.”

      4. rkief July 9, 2013

        It seems to me, unfortunately, that those Americans with the weapons have been the most easily manipulated by, and supporting of the corporate control that is strangling us. Gun owners and their obsession, are the ones who will help keep the oligarchs and the demigogues in power.

  4. JDavidS June 1, 2013

    Everybody’s picking on the rich… Why, just look at the success of “trickle-down economics” and everything else the rich do for us… Uh, what? Oh, it didn’t work? Never mind…

  5. RobertCHastings June 1, 2013

    Could it be that countries like France, Germany, and Japan ALL offer a social safety net, while the US has for years tried to dismantle what is currently in place? All three of those countries have an effective and efficient public health system that does two things we have been TRYING to do, treat everyone at lower cost. Time magazine’s most recent issue gives a quick breakdown of some basic issues with the ACA, and simply compares our system with the of France. Our system, even WITH Medicare, sucks by comparison. The French spend about 2/3 what we spend, in relation to GDP, and they have a life expectancy significantly higher than ours, with essentially the same system many of us would like to see in place.

    1. Chrysippus June 4, 2013

      Right on, Robert. T.R. Reid’s book, “The Healing of America,” details how far behind the civilized world we are with regard to health care.

      1. RobertCHastings June 4, 2013

        Thanks for the heads-up. It is on my reading list.

  6. Chrysippus June 1, 2013

    I understand that GWB is now taking up painting. Too bad he didn’t do that before he bacame a corporatist tool for 8 years. As I said to an artist friend today, “Too bad Bush didn’t start painting earlier, and it’s too bad that Hitler quit.”

    Now how did Hitler manage to bow out with a shot to the head, whereas Bush is free to dedicate a library to himself?” I guess we’re the Land of the Free after all.

    1. Ford Truck June 4, 2013

      Interesting comment. Hitler was a painter too, actually a pretty talented painter, but he couldn’t gain public acceptance. There have been historians who theorized that if Hitler had been able to make it as a painter, he would not have become so interested in politics. We can only wish GWB had been more interested in painting!!

      1. Chrysippus June 4, 2013

        Absolutely! It’s also a fact that Hitler was gassed in WWI, and that might have helped push him over the edge. That reminds me: GWB poured some chemicals on his brain, too, when he was cheerleading his way through Yale. Hmm, sounds like the premise of a scholarly work.

  7. middleclassblues.us


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