Creating Continuously Rising Equality

In one of his "Altercation" columns, Eric Alterman summarizes information on income inequality in the U. S. that he gleans from a Larry Summers (ex-Treasury Secretary and failed Harvard president) article in the New York Times.

"[S]ince 1979, the share of pretax income going to the top 1 percent of American households has risen by 7 percentage points, to 16 percent. Over the same span, the share of income going to the bottom 80 percent has fallen by 7 percentage points. It's as if every household in that bottom 80 percent is writing a check for $7,000 every year and sending it to the top 1 percent." What's more, "In 2004, according to the Congressional Budget Office's latest official analysis, households in the lowest quintile of the country were making only 2 percent more (adjusted for inflation) than they were in 1979. Those in the next quintile managed only an 11 percent rise. And the middle group was up 15 percent. Do you sense a pattern? The income of families in the fourth quintile --upper-middle-class folks with an average yearly income of $82,000 -- rose by 23 percent. Only when you get to the top quintile were the gains truly big -- 63 percent." That one's here.

People like Summers, Alterman, and Paul Krugman have been producing statistics on growing income inequality for years but have been so tied up by conservative obfuscation that they almost never propose anything to correct the situation other than defeating the Republicans. I'm not an economist, but these are some ideas that I would propose to create greater equality in American society.

1. Bring together progressive tax rates with tax simplification principles. But instead of a flat tax, create a three-tier system with tax credits for poor people, a low rate for the middle class (8-10%), and a relatively steep tax rate on the wealthy, capital gains, and corporate wealth. If the deduction on home ownership is allowed to continue, set the tax rate for the middle class higher. If the deduction on home ownership is excluded, set it lower.

2. Punish corporations for overpaying executives. Enact a tax surcharge for firms or tax-exempt entities that pay top executives more than 60 times what they pay their hourly employees. This kind of measure would remove a lot of the incentives to reduce break unions, cut employee salaries, and eliminate benefits and create an incentive to increase employee compensation. For those who would want to maintain the simplicity of the tax sytem, there's the possibility of denying federal contracts to firms that overpay top executives.

3. Create disincentives for corporate mergers and buyouts. A lot of the extremely high corporate salaries and bonuses are related to executives playing the merger/buyout game. The best thing to do here would be to create a number of regulatory hurdles to mergers and buyouts. One thing to do would be for companies to be required compensate employees in anticipation of dislocations, layoffs, needs for retraining, and things like that.

4. Treat Personal Information as Property. I've never understood why information about my income, credit history, consumer patterns, and the like was not considered my property. If Google, Microsoft, or any other company wants to collect information about me, that's fine. But they should pay me a fee for the information before they sell it to other companies. Given the enormous volumes of information being processed, treating information about a person as that person's property would recirculate money from corporate hands to individual hands.

One could argue that instituting these kinds of measures would create dislocations and perhaps lead to negative growth. If that's the case, then the relevant legislation should establish a time-table for the legislation to be fully implemented--perhaps a five to ten year window.