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2.58 MB
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10
People
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Organizations
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Locations
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Events
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Quotes
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Economic research report / standard & poor's ratingdirect document
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2.58 MB
Summary
This document analyzes proposals to address U.S. income inequality, specifically discussing the pros and cons of raising the minimum wage and implementing tax reforms. It cites data from the IMF, CBO, and CATO Institute regarding job losses versus poverty reduction, and reviews specific tax proposals from Warren Buffett, academics, and California legislators aimed at reducing the wealth gap. The text cautions that while some redistribution can be beneficial, excessive taxation might negatively impact economic growth.
People (10)
Organizations (10)
Timeline (5 events)
President Obama proposing minimum wage increase to $10.10
IMF calling on lawmakers to boost wages
OECD report on carried interest taxation
Warren Buffett's argument on tax rates
California legislators proposing CEO-to-worker pay tax ratio
Locations (2)
| Location | Context |
|---|---|
Relationships (6)
Key Quotes (5)
"Managing Director Christine Lagarde said that doing so would help raise the incomes of millions of poor and working-class Americans and "would be helpful from a macroeconomic point of view""Source
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Quote #1
"Reduced labor demands resulting from higher wages could reduce potential hires by 500,000 jobs, according to CBO estimates"Source
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Quote #2
"He claimed that his 2010 federal tax bill--income taxes and payroll taxes--amounted to 17.4% of his taxable income"Source
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"Heavy taxation solely to equalize wages may reduce incentives to work or hire more workers."Source
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Quote #4
""redistribution need not be inherently detrimental to growth, to the degree that it involves reducing tax expenditures or loopholes that benefit the rich""Source
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Quote #5
Full Extracted Text
Complete text extracted from the document (4,098 characters)
Economic Research: How Increasing Income Inequality Is Dampening U.S. Economic Growth, And Possible Ways
To Change The Tide
To Change The Tide
There is no shortage of proposals for tackling extreme income inequality. President Obama has proposed an increase
in the hourly minimum wage to $10.10 from the current rate of $7.25, and the IMF recently called on lawmakers to
boost the wage (though it refrained from suggesting a specific level). Managing Director Christine Lagarde said that
doing so would help raise the incomes of millions of poor and working-class Americans and "would be helpful from a
macroeconomic point of view" (58).
in the hourly minimum wage to $10.10 from the current rate of $7.25, and the IMF recently called on lawmakers to
boost the wage (though it refrained from suggesting a specific level). Managing Director Christine Lagarde said that
doing so would help raise the incomes of millions of poor and working-class Americans and "would be helpful from a
macroeconomic point of view" (58).
An increase in the minimum wage would certainly carry with it short-term impacts, likely bringing 900,000 people
above the poverty line in the second half of 2016--and, according to the CBO, lifting wages for 24 million workers at
the next level above minimum wage. Fewer American households at or below the poverty line would also help bolster
government balance sheets and likely improve state and local credit conditions.
above the poverty line in the second half of 2016--and, according to the CBO, lifting wages for 24 million workers at
the next level above minimum wage. Fewer American households at or below the poverty line would also help bolster
government balance sheets and likely improve state and local credit conditions.
But raising the minimum wage is not without negative consequences. Reduced labor demands resulting from higher
wages could reduce potential hires by 500,000 jobs, according to CBO estimates (59). Further, while 49% of those
workers making the minimum wage are under age 25, the CATO Institute reports that, of older workers (the other half
of minimum wage earners), 29.2% live in poverty and 46.2% live near the poverty level, with family incomes less than
1.5 times the poverty line (60).
wages could reduce potential hires by 500,000 jobs, according to CBO estimates (59). Further, while 49% of those
workers making the minimum wage are under age 25, the CATO Institute reports that, of older workers (the other half
of minimum wage earners), 29.2% live in poverty and 46.2% live near the poverty level, with family incomes less than
1.5 times the poverty line (60).
Apart from minimum wage discussions, a recent report from the OECD suggested that carried interest--the share of
profits that money managers take in from an investment or fund--should be taxed as regular income rather than as
returns on investment. Ian Ayres, professor of law at Yale, and Aaron S. Edlin, professor of law and economics at the
University of California, Berkley, proposed an automatic extra tax, the so-called Brandeis tax, on the income of the top
1% of earners that would limit the after-tax incomes relative to median household income (61).
profits that money managers take in from an investment or fund--should be taxed as regular income rather than as
returns on investment. Ian Ayres, professor of law at Yale, and Aaron S. Edlin, professor of law and economics at the
University of California, Berkley, proposed an automatic extra tax, the so-called Brandeis tax, on the income of the top
1% of earners that would limit the after-tax incomes relative to median household income (61).
Warren Buffett, the chairman and chief executive of Berkshire Hathaway, who consistently ranks among the world's
wealthiest people, has long argued along similar lines. He claimed that his 2010 federal tax bill--income taxes and
payroll taxes--amounted to 17.4% of his taxable income (62). That, he wrote, was the lowest percentage of any of the
other 20 people in his office, whose tax burdens were between 33% and 41% and averaged 36%.
wealthiest people, has long argued along similar lines. He claimed that his 2010 federal tax bill--income taxes and
payroll taxes--amounted to 17.4% of his taxable income (62). That, he wrote, was the lowest percentage of any of the
other 20 people in his office, whose tax burdens were between 33% and 41% and averaged 36%.
Meanwhile, two Democratic California legislators--Loni Hancock and Mark DeSaulnier--have proposed tying the
state's corporate income tax to the ratio of CEO-to-worker pay--a sliding scale in which a company's tax bill could
shrink along with the gap in pay between executives and workers. The change would trim a company's tax rate for any
corporation in which the chief executive makes less than a hundred times what the median worker earns.
state's corporate income tax to the ratio of CEO-to-worker pay--a sliding scale in which a company's tax bill could
shrink along with the gap in pay between executives and workers. The change would trim a company's tax rate for any
corporation in which the chief executive makes less than a hundred times what the median worker earns.
Any clear-headed consideration of these options must recognize that heavy taxation--solely to reduce wage
inequality--could do more damage than good. While the IMF studies found that some redistribution appears benign,
extreme cases may have a direct negative effect on growth. Heavy taxation solely to equalize wages may reduce
incentives to work or hire more workers. A number of studies have indicated that losses from redistribution are likely
to be minimal when tax rates are low but rise steeply with the tax or subsidy rate (63).
inequality--could do more damage than good. While the IMF studies found that some redistribution appears benign,
extreme cases may have a direct negative effect on growth. Heavy taxation solely to equalize wages may reduce
incentives to work or hire more workers. A number of studies have indicated that losses from redistribution are likely
to be minimal when tax rates are low but rise steeply with the tax or subsidy rate (63).
IMF authors Ostry, Berg, and Tsangarides note that "redistribution need not be inherently detrimental to growth, to the
degree that it involves reducing tax expenditures or loopholes that benefit the rich or as part of broader tax reforms
(such as higher inheritance taxes offset by lower taxes on labor income)" (63). Moreover, redistribution can also occur
when taxes finance public investment, or spending on health and education disproportionately benefits the poor, which
degree that it involves reducing tax expenditures or loopholes that benefit the rich or as part of broader tax reforms
(such as higher inheritance taxes offset by lower taxes on labor income)" (63). Moreover, redistribution can also occur
when taxes finance public investment, or spending on health and education disproportionately benefits the poor, which
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