Monday, December 23, 2013

Centers for the Study of Inequality and Poverty Reduction

“Centers for the Study of Inequality and Poverty Reduction” (CSIPRs) are rapidly proliferating throughout America’s top private and public universities.

Most scholars in these centers point to the stagnation of median incomes while the share of income received by the top quintile, decile, 5%, 1%, 0.1%, and especially for the top 0.01%, has been steadily rising during the past 30 years.

An increasing number of prominent economists blame rising inequality for slow growth and lack of job creation in the advanced industrial economies.  Political scientists warn that rising inequality is increasing the likelihood of conflict within and between countries and regions.

Inequality can be measured in units of individuals, households, within and between communities, between urban/rural areas, between nations, and among global regions.  A frequently propounded solution is the transfer of wealth and income from “haves” to “lesser haves” and “have nots.”  Within communities and nations, this often takes the form of more progressive income taxes, higher wealth taxes, and higher taxes on capital income.  Foreign aid and other transfers from rich to poor countries are standard proposals to redress inequality among nations.

The consensus among professors in CSIPRs is that one solution lies in greater access to quality education.  A small number of elite universities enjoy large endowments and annual gifts which enable them to recruit the best (highly-paid) professors and students.  Meanwhile, the vast majority of community colleges, four-year colleges and universities, and massive state-financed universities are strapped for money.  State support is declining and many students cannot afford tuition increases.

To the best of my knowledge, no CSIPR in an elite institution has issued a policy paper recommending that some of its university’s endowment and annual gifts, and some of its faculty’s salaries and benefits, be transferred to less wealthy colleges that face the daunting task of educating the majority of America’s future work force.

CSIPRs recommend redistribution of income and wealth for all except for the centers and professors in them.

It is what it is.  Go figure.

Wednesday, December 11, 2013

Who Cares About the National Debt?

On January 31, 2009, a few days after President Obama moved into The White House, the U.S. National Debt amounted to $10.88 trillion.  Of this, marketable debt held by members of the public amounted to $5.75 trillion, non-marketable debt (largely held by the Social Security Trust Fund) was $4.88 trillion, together summing to $10.63 trillion.

On November 30, 2013, the comparable numbers were $11.79 trillion, $5.43 trillion, and $17.21 trillion, an increase of over $1 trillion a year in both marketable and total national debt.

President Obama and most Democrats believe that annual budget deficits since the financial crash of September 2008 have, if anything, been too small.  They would have preferred larger deficits than actually transpired to stimulate the economy.

Most Republicans prefer smaller deficits, balanced budgets, and ultimately paying down the national debt or at least substantially reducing it.

It’s easy to explain this difference.  It depends on who might have to pay the debt.

Voting by Race and Ethnicity

In the 2012 presidential election, 95% of African-Americans, 72% of non-White Hispanics, and 67% of single women (inclusive of single mothers) voted for President Obama.  In contrast, a majority of men and White married women voted for Republican candidate Romney.  (According to the 2010 Census, Whites were 72%, Hispanics 16%, and Blacks 13.3% of the population.)

How might the U.S. government go about paying increasing interest and paying down  principal on the rapidly rising national debt?  One recourse is a wealth tax, either a one-off measure or an annual levy.  Another option is higher tax rates on upper-income households.

Wealth by Race and Ethnicity

There is a large wealth gap between Whites, Blacks, and Hispanics.  In 2009, the median net worth of White households was $113,140; of Hispanics, $6,325; and of Blacks, $5,677.  The ratio of White-to-Black wealth was 19:1, and White-to-Hispanic 15:1.  A wealth tax would overwhelmingly be borne by Whites.  Only a small fraction of Blacks and Hispanics possess sufficient wealth to be subject to a wealth tax.

Income by Race and Ethnicity

There is also a large income gap between Whites, Blacks, and Hispanics.  White median income in 2009 was $62,545; of Blacks, $38,409; and of Hispanics, $39,730.  For family income exceeding $100,000, Whites were 27.0% of all White families; Blacks, 12.1% of all Black families, and Hispanics 12.4% of all Hispanic families.  For family incomes below $35,000, Blacks made up 55.3% of all Black families, Hispanics 46% of all Hispanic families, and Whites 33.8% of all White families.  Low-income Blacks and Hispanics are a much larger fraction of their respective communities than are low-income Whites.  An income-tax surcharge or increase in tax rates would largely affect White taxpayers.

Racial and ethnic differences overlap education levels, full-time work status, and  marital status.  Whites are better educated, disproportionately work full-time, and are more likely to be married, all of which are strongly correlated with wealth and income.  (Asian-Americans are omitted from these comparisons because they constitute a much smaller fraction of the U.S. population, and because they are divided into many nationalities–Chinese, Filipino, Indian, Vietnamese, Korean, Japanese, and 12 smaller nationalities of East- and Southeast Asians–which vary in income and wealth (e.g., Chinese-Americans vs. Laotian-Americans).

To summarize, Republican voters will largely pay any wealth and/or additional income taxes that are levied to pay interest and principal on the national debt.  Democrat voters will pay little.  It should come as no surprise, then, that President Obama and most Democrats in Congress care little about large deficits and the expanding national debt as their constituents will bear little of the additional tax burden.

Sources: Income data from U.S. Census Bureau, Statistical Abstract of the United States: 2012, Tables 690, 696; Wealth data from U.S. Census Bureau, Survey of Income and Program Participation: August 2010.