As David Cay Johnston has written in a recent article:
A revealing new examination of the top 1 percent in a variety of countries brings into focus how the American government's tax, union bargaining, inheritance and other rules widen the growing divide between those at the top and everyone else.
What he notes is that:
Four economists found that such wealthy and technologically advanced countries as Japan, France and Germany have seen growth at the top, but not the chasm of inequality created in recent decades in the U.S. and Britain. The paper's authors include Emmanuel Saez, the UC Berkeley economist who has won renown for his work examining more than a century of global data on top incomes. The lead author is Facundo Alvaredo of the Paris School of Economics.
He adds:
Cutting tax rates has become the signature issue for Republicans in Washington. Whatever economic issue arises, their answer is to lower tax rates, which they say will spur the economy.
What the authors find should raise questions about that mantra. They looked at tax rates and economic growth in advanced countries around the world:
If we look at the aggregate outcomes, we find no apparent correlation between cuts in top tax rates and growth rates in real per capita GDP. Countries that made large cuts in top tax rates, such as the United Kingdom or the United States, have not grown significantly faster than countries that did not, such as Germany or Denmark.
So, cutting taxes just makes the rich richer. And that's it. And since we know inequality harms society these tax rates, it follows, are harmful to us all - the rich included.
So let's remember that the next time a change is called for, shall we?
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And according to the other side of the ‘cut tax for the rich and see the economy grow’ mantra, ought we also to have seen thousands of wealthy Swiss, German, Finnish and particualrly Dutch, citizens heading to the US, Richard, as they all fled the evil of high tax regimes. Now I admit I don’t know much about demographic change in Finland or Switzerland, but I do know enough about Germany and The Netherlands to know that just hasn’t happened. I wonder how all the free market economist and think tanks will explain that away?
Ivan, why would anyone in their right mind choose to become a world-wide taxed individual by moving to the US? Trade-offs being what they are, would rather have a slightly higher rate on some of my income vs. all of my income being subjected to the US regime and the IRS.
It is an odd list of countries, why no mention of France and their very real flight they are experiencing?
The Office of National Statistics figures show that income inequality in Britain post tax and benefits(using the Gini coefficient) has not increased (and certainly not dramatically as you suggest)for 20 odd years. In fact, the last data shows that income inequality is less now than in the early 1990s.
Interestingly, Sweden the normal example of a high tax country has much greater wealth inequality than the UK (although lower income inequality). I wonder why that’s never mentioned?
What a convenient choice 20 years is – after Thatcher dramatically increased it
And you think comparison with the Edwardian era is OK?
No, it wasn’t just a convenient choice. It was in response to the point in the article that you reference and I quote, “…but not the chasm of inequality created in recent decades in the U.S. and Britain”. I took recent decades to be the last 20 years which is not unreasonable. However, I am glad we are agreed that the problem hasn’t got worse in 20 years and yes I agree it got worse under Thatcher in the 1980s.
Labour stabilised it
Now it’s getting worse again
Looking at the data, page 26 of the ONS report on the web, inequality actually got worse under Labour (rather than stabalising). The Major Government stabalised it. It has actually got better (more equal) over the last 3 years under the Tories. That’s what the figures seem to say at least which is a bit of an inconvenient truth.
That’s a pretty big extrapolation of small variations
Surely that is the end of “horse and sparrow” economics that has dominated the neo liberal agenda for the past thirty years?
Steve Keen, using Johnson’s graph, has also tweeted “Labor’s share plummets, Fed data just posted shows, meaning capital’s share is soaring”. However, it would be good to know the share extracted by landowners (in the economic sense of land). If you look at rising site rentals and capital values and the rising value of mineral assets, this is surely not insignificant. But then, land doesn’t matter in the neoclassical world. Just had that confirmed by John Kay’s LSE lecture on Tuesday. (But Mariana Mazzucato was brilliant!)
This is also a case of shifting the tax burden.
@jledbetter
Please send me the David you’re referring to, and where to research the additional data on this. Davidcay@me.com
Thank you
@ David Cay Johnston.
Here is the link so others can access too (page 26 Figure E):
http://www.ons.gov.uk/ons/dcp171766_268392.pdf
You will note that inequality actually went up under Labour which is a crime but has reduced subsequently under the Tories. There’s also this from the Institute of Fiscal Studies (sponsored by the Joesph Rowntree Foundation (page 27):
http://www.ifs.org.uk/comms/comm124.pdf
This suggests that recent reductions in the top 1% contributed to the reduction in inequality. Poor them.
These measures show the Gini is rising at present i.e. matters are getting worse
Are you sure you know what you’re claiming?
It is the figures that are post tax and benefits (ie redistribution) that are relevant. This has gone down as is acknowledged in all the reports. I don’t know how you interpret “income inequality in the UK fell sharply” and a declining recent trend in the graph getting worse but happy for you to point out my error. It’s also lower than in the early 1990s and much lower than 2001 when Labour were in.
Gini is rising at the end of all trends on p26
Page 36 of the ifs report makes it clearer and uses the same data. Graph 3.7. Sharply downwards as you will see.
So are we all agreed that income inequality post tax and benefits is not increasing and hasn’t in any meaningful way (small variations per your response to Mary Snell) for the past 25 years per the UK data?
No
The evidence does not support that conclusion – most especially now
Can someone make sense of this? I’m no statistician but even I can tell, as Richard says that the GINI coefficient is rising at the end of the graph on p.26
According to an IFS report (1997-2010):
‘With falls in income poverty, one might expect to have seen a fall in income inequality. Indeed inequality did fall across much of the distribution. Those on relatively low incomes did a little better than those with incomes just above the average. However, those right at the top saw their incomes increase very substantially with the result that, on most measures, overall inequality nudged up
slightly.’
http://www.ifs.org.uk/publications/6738
How this can be commensurate with no worsening of income equality as J ledbetter avers I don’t understand.
The IFS graph and ONS graph have different data for the 2010/11 year. IFS shows Gini going down, ONS shows it going up to 38 from 37.1 the year before. Given the ONS are the offical numbers
@ Simon and @ SF. As Richard correctly points out any variations are small. So it is difficult to conclude that there’s a “chasm of inequality created in recent decades” per the article. It’s actually down from where it was in the early 1990s – which I think was J Ledbetter’s central point based as you say, SF, on the official data.
And as I made clear – that period is a false one to consider as it excludes the massive Thatcher impact
@Simon – yes, that’s clearly a possibly reason and we will see when the data comes out for the next few years. Even ignoring the recent decrease it’s still the case that inequality has not got worse in the last 25 years although there are small variations year to year. It got worse in the 1980s. Since then it’s bumped around the same sort of level. So it’s simply not right to definitively say it is “getting” worse and that’s the point I’m making. It “got” worse in the 1980s and then stayed largely unchanged.
Obviously, it’s up for debate whether the tax and benefits policies should reverse some or all of the 1980s rise inequality. I’m not dismissing that as an idea. However, I would say that there’s been 5 general elections in that period and people appear to have voted to keep those inequalities as no party has reversed it. It may change next time though but looks unlikely as I think the politicians of all parties have concluded it’s election suicide to suggest increased taxes and benefits so not much sign of the Courageous State and all that.
@simon. You are using the previous years data to 2010. The report I linked from the IFS was for more recent data.
But surely:
‘Those on relatively low incomes did a little better than those with incomes just above the average. However, those right at the top saw their incomes increase very substantially with the result that, on most measures, overall inequality nudged up
slightly.’
Indicates things HAVE GOT WORSE during the last 20 years and the trebling of people using food banks during the last two years must indicate something.
Quite so
@ Simon.
I could also pull out quotes in isolation. For example, these quotes out of the recent IFS report, “Although this reverses the increase in this measure of income inequality that occurred under the previous Labour government” and “The largest falls in income took place at the very top of the income distribution, with income at the 99th percentile falling by 15% in 2010—11 … The decline in inequality in 2010—11 was by no means driven only by falls in the very highest incomes: inequality declined right across the income distribution.”
It’s true that inequality went up (dramatically) in the 1980s – as Richard correctly points out – but it has been more or less stable since then so isn’t “getting worse”. Also, per the tables it’s interesting to note that the 1980s inequality was driven primarily by increasing top line income (gross income) inequality not by the Tories tax and benefits policies. Those policies failed to keep pace with increasing gross income inequality but didn’t cause it.
maybe this is why things now look like there has been a fall in inequality in 2011:
‘The largest falls in income took place at the very top of the income distribution, with income at the
99th percentile falling by 15% in 2010—11. This is likely to be partly due to the temporary effects of Executive summary
3
the introduction in April 2010 of the 50% marginal income tax rate on incomes exceeding £150,000
per annum. HMRC estimates that the 50% tax rate resulted in substantial income ‘forestalling’ — the
bringing forward of income from 2010—11 to 2009—10 in an effort to avoid the higher marginal rate
of tax in 2010—11. This forestalling would have raised top incomes in 2009—10 and depressed top
incomes in 2010—11. We would also expect the reform to have had some permanent effects on top
incomes, via the direct impact of the tax rise lowering net incomes and the indirect impacts via (for
example) reduced labour supply. It is uncertain exactly how much of the overall response reflects
permanent behavioural change and how much is temporary.
Also ‘reverse-forestalling will have taken place:
‘”reverse forestalling” is delaying income in anticipation of a future tax cut. Both the 50p and 45p rates were announced a year before their introduction. It is hardly surprising that people who are able to vary the times at which they receive income – typically, business owners receiving dividends from their businesses – will do so in order to reduce their tax bill. So it is not surprising that HMRC’s figures (pdf, p.31) suggest that £16-18bn of income from high earners was brought forward into the 2009-10 tax year, which is after the 50p rate was announced but before it was introduced. And similarly, we would expect that following the announcement of the 45p rate to be introduced in April 2013, those who can will delay their income receipts until after that date in order to benefit from the lower rate.
see:http://coppolacomment.blogspot.co.uk/2012/03/forestalling-tax-avoidance-and-politics.html
There’s much on here about that too
A recent statement by the Joint Issues team of the non-conformist churches:
‘Poverty and inequality are predicted to increase over the next years. The poorest tenth’s standard of living will fall for at least two more years, the richest tenth will not have experienced a year of declining standard of living since 1948. As inequality rises, we work to help all contribute to and benefit from the wealth of society.
How do the graphs relate to this ‘reality.’