Tuesday, May 01, 2012

Inequality and political power

Jeffrey Sachs, writing at the horribly redesigned Salon.com:
Inequality of income has also led to inequality of political power, leading to governments that simply don’t care enough about the working class and poor to make the needed investments on behalf of the broader society. We have a vicious circle instead. The rich get richer and also more powerful politically. They use their political power to cut taxes and to slash government services (like quality education) for the rest of society. Wealth begets power, and power begets even more wealth.
Ahem (Figures are adjusted for inflation and include federal, state and local government. Source of revenue numbers here, source of spending numbers here and population figures here):
  • US government tax revenue per capita in 1980: $5,960. In 2010: $15,290 
  • US government spending per capita in 1980: $10,840. In 2010: $19,160
Thus, if income inequality has surged over the past 30 years, it has corresponded with a near tripling in per capita tax collected and almost a doubling in spending -- almost the complete opposite of what Sachs claims (Oh, and federal education spending has roughly doubled since 2000). The fact remains that no matter how much money the rich have, the poor and middle class far outnumber them in terms of votes, which is the currency that trumps all others in politics. Indeed, as Robert Samuelson wrote yesterday:
Recently, Ron Haskins of the Brookings Institution, a Washington think tank, testified before the House Budget Committee on the growth of the 10-largest "means tested" federal programs that serve people who qualify by various definitions of poverty. Here's what Haskins reported: From 1980 to 2011, annual spending on these programs grew from $126 billion to $626 billion (all figures in inflation-adjusted "2011 dollars"); dividing this by the number of people below the government poverty line, spending went from $4,300 per poor person in 1980 to $13,000 in 2011. In 1962, spending per person in poverty was $516. 
Haskins' list includes Medicaid, food stamps (now called the Supplemental Nutrition Assistance Program, or SNAP), the earned-income tax credit (a wage subsidy for some low-income workers), and Pell Grants. There are other, smaller programs dedicated to the poor. A report from the Congressional Research Service estimated the total number at 83; Haskins puts the additional spending on programs below the 10 largest at about $210 billion. The total of all programs for the poor exceeds $800 billion. 
To be sure, some spending reflects the effects of the Great Recession. But most doesn't. As Haskins shows, spending on the poor has increased steadily for decades. Consider food stamps. There are now about 45 million Americans receiving an average of $287 a month in food stamps, up from 26 million in 2007, according to a new Congressional Budget Office report. But the number in 2007, when the economy was healthy, was roughly 50 percent higher than in 2001. 
And programs for the poor pale beside middle-class transfers. The giants here are Social Security at $725 billion in 2011 and Medicare at $560 billion. Combine all this spending -- programs for the poor, Social Security and Medicare -- and the total is nearly $2.1 trillion. That was about 60 percent of 2011 non-interest federal spending of $3.4 trillion.
More practically, the rich do not constitute a monolithic constituency, forever lobbying for lower taxes and less government spending. Warren Buffet is famously outraged over the fact that he pays a lower tax rate than his secretary, the Hollywood left is perpetually fundraising for various leftist causes and author Stephen King is upset that he isn't forced to fork over half his income to government. 

Furthermore, if the rich (or at least the rich members of the vast right wing conspiracy) are the ultimate puppet masters setting the government's agenda, why does the US have the highest corporate tax rate among OECD countries and a regulatory state that is constantly growing? Sachs advances an argument that is long on righteous anger, but short on anything in the way of logic or evidence. 

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