There has been a lot of discussion about “income inequality” lately – clearly because the Obama administration thinks it’s a political winner. You can’t have a discussion of this topic without quickly getting to tax policy and our tax system.
I am a strong supporter of progressive tax systems. That’s why I don’t favor value added taxes. I also believe the income tax system is one of the better vehicles for progressivity. However, I don’t think of progressivity as a cure for income inequality; I actually believe in it because of the exact opposite. There is no such thing as income equality, even in a communist system. I like progressivity because I believe people with higher incomes should pay higher rates and make a larger contribution than those starting out – so that they can work to make more and pay more taxes.
When I was a young editor, my senior editors would say, “Sure, you like the progressive income tax now, but wait until you start making more money and have more responsibilities.” They would say it with great confidence. And it turns out they were wrong, because I still favor a progressive tax system.
Also when I was a young editor, it made total sense to me that the company president was paid a bigger salary than I was. I didn’t pay a high marginal rate. But as I moved along in my career, I began paying higher marginal rates. I was always fine with that deal. I paid a higher rate, and someone starting out was getting the break that I got.
I see nothing wrong with income inequality; it’s actually income reality. That isn’t to say that I am unconcerned by the accumulation of wealth in a small percentage of our population. That’s bad for society, and history teaches that it can end quite badly for the wealth accumulators (when that happens, the folks who sell pitchforks become the real wealth accumulators). But those are two different issues – income inequality and wealth concentration – that our politicians are marketing as the same.
This week’s Tax Notes has an interesting article by Lee Sheppard – “The Gatsby Effect and the Middle Class” – that examines some of the issues involved in the income inequality debate, including what’s causing the decline of the middle class in this country and how to deal with so-called income inequality (by now you have figured out that I don’t care for the term). It’s based on a recent conference that was sponsored by the University of Southern California Gould School of Law to explore the role of tax policy in inequality. While I don’t agree with everything in it, I think it’s an informative and enjoyable read for anyone interested in the topic. You can get it by clicking here.
One of the concepts discussed at the conference that I’m not sure I support was progressive spending as a way to get to a more progressive system. I still support a progressive tax system, just not as a method of addressing income inequality. Because as far as the debate about income inequality goes, I remain a skeptic – with an open mind.