Introduction

 

“Inequality has risen to the point that it seems to me worthwhile for the U.S. to seriously consider taking the risk of making our economy more rewarding for more of the people.”

—Janet Yellen, 

Chairman, Federal Reserve Board

 

“America is the wealthiest nation on Earth,  but its people are mainly poor . . . .”

 

—Kurt Vonnegut, Slaughterhouse Five

 

“The test of our progress is not whether we add more to the abundance of those who have much; it is whether we provide enough for those who have too little.” 

 

― Franklin D. Roosevelt

 

President Obama declared that inequality is the “defining challenge of our time.”  Yale professor and economist Robert J. Shiller, who was among three Americans who won the Nobel prize for economics in 2013, believes that rising economic inequality in the United States and other countries is “the most important problem that we are facing now today.” At the beginning of 2014, the richest 85 people on earth owned as much wealth had the poorest half of humanity.

 

After four decades of moderating inequality, income inequality in the United States began to increase around 1970. Since then it has risen at a steady rate, reversing the long-term trend toward declining inequality.  A similar upswing in inequality has been observed in some other industrial societies besides the United States, suggesting that the phenomenon has an international character. 

 

In 2007, median household income in the United States was $62,554 when adjusted for inflation. In 2013, it was $51,913.

And in 2014, it is $53,891, about 14 percent less than 2007.  We may have recovered jobs lost during the Great Recession, but wages are lagging behind, lower than they were 15 years earlier in 1999.

 

Everyone is talking about inequality in America.  Thomas Piketty’s recent book Capital in the Twenty-First Century is a best-seller.  Piketty writes about the expansion and measurement of inequality in an interesting and compelling fashion. Prof. Piketty also proposes primarily one major change, increased estate taxes that will be difficult to get through Congress. Prof. Piketty, however, supports increases in minimum wages, improved education and other reforms.

 

This book provides concrete ways to change the United States to make it more equal, many of which have bipartisan support in Congress. Many of the proposed solutions can be used by other developed nations to reduce equality.

 

Inequality in America has reached the flash point:  we are entering a new era in the United States where our children are poorer than we are.  Young adults are burdened with college loans, overpriced real estate and a bad labor market.  Something has to be done.  Inequality in America: 10 Causes and 10 Cures has some of the answers and hopefully will stimulate others to propose alternative remedies.

 

1. International Trade Reform.  The persistent trade deficits that drain America of jobs and money have cost us three million jobs. The author proposes new, tougher trade deals with China and Mexico, less outsourcing (especially of government work), a new energy and environmental policy that will put solar panels and solar hot water heaters on rooftops across the nation and impose a carbon tax on Chinese imports to counteract their pollution.  In addition, the author proposes actions to raise the value of the Chinese yuan that has been held at low levels to help Chinese exporting industries. Even the conservative Peter G. Peterson Institute for International Economics has found that fully 40% of the income inequality in the United States is due to international trade.

 

2. Social Security and Income Tax Reform.  Social Security taxes are a regressive tax that tax the poor at a higher rate than the rich.  The author proposes no social security tax on the first $25,000 of income, and lifting the cap.  Now those earning more than $118,500 pay no additional social security taxes.  In addition, the author proposes imposing social security taxes on unearned income such as capital gains, dividends and royalties. Putting these dollars back in consumers’ hands will stimulate the economy. In addition, these reforms will strengthen the Social Security Trust Fund.

 

Income Tax Reform.  Our current income tax structure exacerbates income inequality.  Capital gains should be taxed at the same rate as salaries.  Taxes should be simplified.  General Electric and other profitable companies must pay their fair share of income taxes.  The author proposes simplifying and rationalizing income taxes, getting rid of loopholes and deductions, and having three levels of income tax:  10%, 20% and 28%, with corporations making over $1 million paying 28% as well.  The author proposes reducing the tax rate on corporations so that they do not shift income offshore, and simplifying the corporate rate structure.

 

The tax system in the United States is a mess. Even Warren Buffett, one of the richest men in the world, said that he should pay a higher tax rate than his secretary.  Corporations are now fleeing the United States in droves to avoid paying U.S. taxes.  

 

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