Economic inequality is damaging our country. The gap between the wealthiest and the rest of us is growing, not shrinking. Yet Congress and a president elected by many who have been left behind economically have passed a tax bill that further widens that gap.
The tax bill should be called the Inequality Exacerbation Act of 2017. This is the wrong direction. To strengthen our economy for the long run, we need to address inequality head-on through tax and other policies that do pretty much the opposite of this legislation.
While growing inequality can be shown in many ways, here’s one data point that tells the story. In 1980, the top 1 percent of earners took in 27 times more than those in the bottom 50 percent. Since then, this multiple has tripled to at least 80.
Indeed, the first annual World Inequality Report, released last week by the WID.world project, shows that between 1980 and 2016, income inequality increased considerably faster in the United States than in other developed nations.
As an economist, I focus on the economic impact of inequality. There is growing evidence that economic inequality is a significant drag on the U.S. economy. Addressing inequality with specific policies to spur job growth, invest in human capital and improve conditions for American workers and their families would be beneficial not only to most of the American people but also for our economy.
Nevertheless, as with every other iteration of the tax bill, the final version skews benefits toward the wealthiest in our society. According to the Tax Policy Center, in 2018, nearly two-thirds of the tax cuts would go to the top 20 percent of the income distribution.
Many temporary provisions expire by 2027, so much so that — shockingly — more than 100 percent of the net tax cuts will go to the top 20 percent.
The permanent corporate tax cuts and other cuts benefiting the wealthy, combined with only short-term benefits for the middle class and measures that increase the cost of health insurance for those lucky enough to have it, lead to a result that the American public well understands — a tax bill designed for the rich.
A more insidious way that this tax bill increases inequality is that it’s not paid for; it adds more than $1 trillion to the national debt over 10 years. Supporters are not waiting for the ink to dry before making clear how they intend to pay for it — by cutting programs important to middle- and low-income Americans.
"Welfare reform” and “entitlement reform” mean cuts to Medicaid, Supplemental Security Income, nutrition assistance, Social Security disability insurance and, potentially, Social Security retirement and Medicare. This is in addition to continuing cuts to domestic discretionary spending, such as education, housing, transportation, medical research and other programs vital to the well-being of average Americans and to long-term growth.
Let’s imagine what policymakers seeking to achieve sustained and broad-based economic growth — growth with benefits that reach all Americans — could do instead of this wrongheaded tax bill.
First, policymakers should reform the corporate tax system while maintaining or increasing the level of revenues it raises. In prior years, policymakers believed that corporate tax reform should be “revenue neutral.” Corporations don’t need more cash. They do not lack for the resources to invest in American jobs.
More money in the pockets of poor and middle-income taxpayers is what will drive companies to invest. All the more reason that corporate and investor tax cuts should not be paid for by average Americans.
Second, we should be acting to reduce inequality. We need to address America’s needs for investments in infrastructure, science, education and health care.
To be a highly competitive economy, we need the best-educated workers, we need people to have access to health care and we need to stem the high death rates of our people in their prime. We need a tax reform agenda that delivers the revenue our nation needs to succeed in the 21st century.
We should not be under the illusion that this Congress and this president will reverse course. But those who believe the first priority should be to make our economy stronger and spread the benefits of growth more widely must be prepared to pursue those policies when we have the chance.