China Daily: New plan to reduce income inequality

"The framework may use the Gini coefficient, an internationally accepted gauge of income inequality, or adopt a mix of indicators, such as urban-rural income disparity or wage differences among various industries.

Targets would almost certainly be more powerful than persuasion, he said.

The country’s Gini coefficient has already reached a high, if not dangerous level. It is close to 0.5, he said, a point that "is threatening" social security. Little room is left for the index to grow.

The last time the government reported the Gini coefficient was in 2000, when it stood at 0.412."

You would not thinks that income distribution would be so unequal in a communist nation. 


Of interest, the US GINI coeficient ais also near.5 which exaplains both Tea Bagger and the OWS movements.

see New plan to reduce income inequality[1]|chinadaily.com.cn 


source: http://library.thinkquest.org/05aug/00282/over_measure1.htm


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The outcome of income inequality

Paul Krugman has an excellent editorial on this subject. Does income inequality cause a depression?

Rightardia thinks as Krugman that income inequality can be a factor. Income inequality does cause social instability. In fact,the Gini coefficient quantifies this and the US's is 46.8 in 2009.


Once the co-efficient reaches .5, social instability may follow. The US is almost there. If you think the Tea party and OWS protests are an aberration, think again!

Rightardia thinks supply side economics and the Bush tax cuts that followed are the cause of the income gap between the rich and poor. Has Obama done anything to fix income inequality?

Not much. His increases to the Food Stamp program (SNAP) helped. He also increased unemployment insurance payouts. But he also extended the Bush tax cuts after the GOP 112th Congress took power. His middle class tax cuts also helped.

Krugmans says this:

So how did that happen? For the past century, political polarization has closely tracked income inequality, and there’s every reason to believe that the relationship is causal. Specifically, money buys power, and the increasing wealth of a tiny minority has effectively bought the allegiance of one of our two major political parties, in the process destroying any prospect for cooperation.


Krugman concludes:

No, the real structural problem is in our political system, which has been warped and paralyzed by the power of a small, wealthy minority. And the key to economic recovery lies in finding a way to get past that minority’s malign influence.

graphic: http://www.nndb.com

sources:

http://www.nytimes.com/2012/05/04/opinion/krugman-plutocracy-paralysis-perplexity.html?_r=1&ref=opinion#

http://en.wikipedia.org/wiki/Gini_coefficient#US_income_Gini_indices_over_time
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WH Blog: The Buffet Rule Asks the Wealthiest to Pay Their Fair Share

Megan Slack

April 10, 2012
02:00 PM EDT

Nearly one-quarter of all millionaires (about 55,000 individuals) pay a lower tax rate than millions of middle-class families. Warren Buffett has famously said that he pays a lower tax rate than his secretary, and he agrees that isn’t fair. To reform our tax system, which is currently tilted in favor of very high-income households, President Obama has proposed a basic principle of tax fairness called the Buffett Rule.

And, using the average tax rate to tell the story actually, like in the chart above, masks the fact that some high-income Americans pay extraordinarily low tax rates. 

A full 22,000 households that made more than $1 million in 2009 paid less than 15 percent of their income in income taxes. And the top 400 richest Americans—all making over $110 million a year—paid an average of 18 percent of their income in income taxes in 2008, but one in three of them paid less than 15 percent.

Americans need to wake up when they hear Republicans talking about flat taxes or fair taxes. Both are regressive taxes that shift the tax burden to the middle class. Herman Cain's 9,9,9 plan is a perfect example of this. So was Mike Huckabee's 'fair tax' in the 2008 election. 

Most US taxes are regressive such as sales tax and municipal property tax. The FICA tax for Social Security is also regressive because of the FICA social security tax cap of $110,100 that lets the affluent off of the hook.

Republicans have flattened the tax tables since the Reagan area in a way that has greatly benefited the most affluent Americans. While the middle class will et some lip service on tax cuts, the wealthy will save tens of thousands. 

As the Citzens for Tax Justice state: 

. . . (T)he Ryan budget would replace the existing personal income tax with a personal income tax that has just two rates, 10 percent and 25 percent, repeal the Alternative Minimum Tax (AMT), and offset the costs by closing unspecified tax loopholes and tax expenditures. The table on the first page illustrates that taxpayers with adjusted gross income (AGI) exceeding $1 million would enjoy a tax cut of at least $187,000 under this plan no matter how it is implemented.

Because of capital gains taxes and other special taxes for venture capitalists such as deferred interest,  most affluent Americans are only taxed as 15 per cent. The affluent benefit from a regressive US tax system.

The Republicans have not only flattened the income tax system which includes capital gains and deferred interest and other special tax break, they have also established numerous exemptions for c-coprorations and also curtailed the estate tax which had been suspened until recently.

The net effect is that the US has a huge deficit that was worsened by the Iraq War and another unfunded bush initiative, Medicare Part D.

The US has had very unequal wealth distribution for many years. We now have the fifth most uenequal income distribution as well. 

This can cause social instability that can be defined using the GINI coefficient. The US GINI  is presently  46.8  in 2009 and is getting worse. 

In general  if the GINI is more than .50, the country has an income distribution problem which could lead lead to social instability and crime.

Of course the GOP solution for crime is a concealed carry permit! 

See: http://en.wikipedia.org/wiki/Talk%3AGini_coefficient 

http://ctj.org/ctjreports/2012/03/ryan_budget_plan_would_cut_income_taxes_for_millionaires_by_at_least_187000_annually_and_facilitate.php

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If you think things are bad now . . .

Wiil the GOP make a comeback in 2010? If it does, the US economy will be in worse dire straits than ever. The GOP one trick pony, Tax Cuts, won't work, because the US has a historic imbalance of wealth of income that is even worse than before the Great Depression.

Many businessmen have finally  realized that top tier tax cuts aren't useful when a business has few customers. It's the middle class that drives the economy, not the affluent. Many conservatives think that giving the affluent more  will fix the economy.

The problem is there is no more to give the wealthy. The middle class is on it knees.

Giving the middle class more will fix the economy and that was what FDR did during the Great Depression with a 90 per cent tax rate on the affluent. The Great Depression started in 1929 and some historian say is t did not end until after World War 2. Other historians say it ended in 1942 or when World War 2 started.

A redistribution of wealth from the upper class to lower classes, and government spending due largely to the build up for World War two were the main reasons for the ending the great depression. 

When the war ended, the nation was rebuilt with a thriving middle calls. 


The US Gini coefficient is  46.69 which is higher than it was before the Great Depression. Anything above .40 is considered dangerous and social instability may result. 

The Bush tax cuts not only need to be allowed to expire, federal income tax on top income earners should be raised.  

See http://wiki.answers.com/Q/How_did_people_end_the_great_depression

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China Daily: Legislature proposes narrowing the gap in wealth

(Xinhua) Updated: 2010-08-24 22:36

BEIJING - China's top legislature, the National People's Congress (NPC), has proposed a reform in income distribution be launched as soon as possible, aiming to increase residents' income and narrow the gap in wealth.

Officials of the Financial and Economic Affairs Committee of the NPC said they have completed a research report on distribution of national income and made the proposals to be included in the 12th Five-Year Plan (2011-2015).

The legislature did not release further details on the proposed reforms in income distribution.

The NPC, for the first time in history, completed 15 research reports on 14 major subjects from March to July to provide proposals for the formulation of the critical development plans for the next five years, after top legislator Wu Bangguo called for the research at the annual legislative session.

According to a World Bank report, the Gini Coefficient for China, a main gauge of income disparity surged to 0.47 in 2009, exceeding the "security line" of 0.4, pointing to the unequal distribution of income which could arouse social unrest.

This figure was 0.21 to 0.27 three decades ago. In the primary distribution of national income, the proportion that goes to wages and salaries, the major source for China's mid- and low-income families, has been declining, according to Yi Xianrong, a researcher at the Chinese Academy of Social Sciences.

The proportion of the total income that Chinese citizens receive from the distribution of national income fell sharply to 57.9 percent in 2007, compared with 68 percent 20 years ago, according to the People's Bank of China.

The Gini coefficient is a measure of statistical dispersion developed by the Italian statistician Corrado Gini and published in his 1912 paper "Variability and Mutability" (Italian: Variabilità e mutabilità).

The Gini coefficient is a measure of the inequality of a distribution, a value of 0 expressing total equality and a value of 1 maximal inequality. It has found application in the study of inequalities in disciplines as diverse as economics, health science, ecology, chemistry and engineering.

It is commonly used as a measure of inequality of income or wealth. Worldwide, Gini coefficients for income range from approximately 0.23 (Sweden) to 0.70 (Namibia) although not every country has been assessed.

US income Gini indices over time

Gini indices for the United States at various times, according to the US Census Bureau:

• 1929: 45.0 (estimated)
• 1947: 37.6 (estimated)
• 1967: 39.7 (first year reported)
• 1968: 38.6 (lowest index reported)
• 1970: 39.4
• 1980: 40.3
• 1990: 42.8
• 2000: 46.2
• 2005: 46.9
• 2006: 47.0 (highest index reported)
• 2007: 46.3
• 2008: 46.69

The simplest way to control the distribution of income in a country is with a progressive income tax in which the higher income levels pay a higher tax rate. In the US the Republican party with the cooperation of Blue Dog Democrats has worked tirelessly to flatten the progressive income tax. The US Gini index is now higher than it was before the Great Depression. 

In the US, an Estate Tax that Republicans referred as a "Death Tax.' although the Estate Tax only effects the top 5000 American families with estates worth more than $1 million, GWB suspended this tax. The suspension will expire in December 2010.


In the short term the GOP tax policies benefit the 'have mores." In the long run, these same tax policies create social instability such as that which occurred during the Great Depression.

source: http://en.wikipedia.org/wiki/Gini_coefficient

http://mapscroll.blogspot.com/2009/04/is-us-becoming-third-world-country.html

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This Time, We Can't Leave the Middle Class Behind

TUE, AUGUST 11, 9:16 AM EST

Rightardia comment: This situation didn't happen by magic. The Republicans have been on a deregulation kick for the past 30 years that enriched the affluent at the expense of the public infrastructure. Many CEOs in large corporations now make in one day what the average employee makes in a year. The health care battle that is going on is an attempt to reverse this trend.

If you look at the top one per cent chart, you can see the inequality in income started in the 1980s when Ronald Reagan became president. Reagan used the Trojan horse, supply side economics, to rewrite the income tax code so it favored the rich. In the US the GINI coefficient is now above 0.40 that is the threshold that indicates income inequality. Reagan's tax cuts actually fractured the middle class. One third became affluent and the other two third either treded water or declined.

Income tax and the estate tax are the two progressive taxes in the US.  These are the taxes the GOP always tries to cut. You never hear Republicans saying much about sales tax, municipal tax, tariffs, or excise tax because they are regressive. The so called fair taxes or flat taxes that the GOP also talks about are simply synonyms for regressive taxes.

Bush followed in the footsteps of Reagan and also fiddled with the tax codes cutting both the income tax tables for top earning Americans and also cutting the capital gains tax. Bush even suspended the other progressive tax: the Estate tax. Bush also bragged during one of his inauguration balls that his base was the 'have mores.'

There are three words that explain the decline of the middle class in the US. They are "the Republican Party.'

Posted by Jared Bernstein

Even before we got to the White House, the President, the Vice President, and the economic team were crafting policies designed to offset the deepest recession since the Great Depression. Back in mid-December of last year, I remember a meeting in Chicago, with the snow swirling outside, as we began to plan the Recovery Act, the financial stabilization plan, and housing relief, all in the context of a budget that would bring down the trillion-plus dollar deficit we were about to inherit as quickly as possible.

I also remember the Vice President talking about the difficulties facing the middle class, struggles that predated the recession. With the campaign fresh in their minds, he and the President recalled that even in supposedly good times, when the economy was expanding and unemployment was low, the families they met on the trail were having far too much trouble making ends meet.

Saving for college, paying for health care, keeping up with the mortgage payments … just making their basic budgets balance out at the end of the month seemed awfully hard in an economy that was supposedly solid.

Of course, that solid economy was fading fast; the recession was a year old, unemployment was rising, and helping people get back to work had become our top priority. But the longer-term, structural challenges that have been facing the middle class since long before the recession began were never far from the President’s mind, which is why, shortly thereafter, he asked the VP to chair the Middle Class Task Force.

Today, in August of 2009, we’re faced with yet another set of realities. After falling at a rate of about 6% from the last quarter of 2008 through the first quarter of this year, a rate of decline we hadn’t seen in half a century, the economy contracted at a 1% rate in the second quarter of 2009.

Yes, our economy is still ailing, but six months ago, economists worried the recession would descend into depression; now they’re asking when recession will become recovery.

Here in the White House, however, recovery means something very specific, and it’s different than what economists generally mean when they talk about it. According to the panel that decides when recessions officially begin and end, you don’t need job growth or falling unemployment to declare that a recovery is underway. In fact, in the last two recoveries, it took 15 and 19 months, respectively, before the unemployment rate peaked.

That definition doesn’t work for us. No jobs, no recovery.

But—and this is the real subject of this post—job growth isn’t enough either. Remember, unemployment fell to below 5% at the end of the last expansion, but middle-income families ended up worse off, in real dollar terms, than they were before that expansion began. The productivity of our economy increased by 19% from 2000 to 2007, but the real median income of working-age households fell $2,000. The share of Americans living in poverty was actually higher in 2007 than it was in 2000.

How could this happen? In fact, the arithmetic is disarmingly simple. If the economy’s growing, but middle-class and low-income families are falling behind, then the growth must be accruing to the top of the scale. And that’s exactly what happened.

Some of the best data on income inequality are collected by two economists: Emmanuel Saez and Thomas Piketty. Their data go back almost to the beginning of the last century, allowing us to make some pretty amazing observations, like the one shown in the figure below.

Income concentration, measured as the share of income going to the top 1% of households, was higher in 2007 (23.5%) than in any year on record going back to 1913, with one ominous exception: 1928, the height of the speculative, bubbly "roaring 20s" and the year before the stock market crashed and the Great Depression began.

For middle-class families to be part of the next recovery, this trend must reverse.

Yes, we want to see a GDP recovery take hold as soon as possible, and once we start seeing robust, consistent job growth we’ll know we’re solidly on track. But even then, we won’t be done: not until the prosperity we’re generating reaches everyone who’s contributing to it, not until all the bakers get their fair slice of the pie—not just the owners of the bakery or the investors in the bakery, but the men and women who are actually doing the work.

Here’s what the President said about this way back in February 2007, when he announced his candidacy:

"… let's be the generation that ensures our nation's workers are sharing in our prosperity. Let's protect the hard-earned benefits their companies have promised. Let's make it possible for hardworking Americans to save for retirement. And let's allow our unions and their organizers to lift up this country's middle class again.

"Let's be the generation that ends poverty in America. Every single person willing to work should be able to get job training that leads to a job, and earn a living wage that can pay the bills, and afford child care so their kids have a safe place to go when they work. Let's do this."
Though he may not have realized at the time, the President-to-be was really describing the work of the Middle Class Task Force. Vice President Biden, the Task Force staff, and our members at all the cabinet agencies will do everything we can to make sure that the next recovery stacks up very differently than the bars in the graph above. The middle class won’t get left behind again.


Jared Bernstein is Chief Economist to Vice President Biden, and Executive Director of the Middle Class Task Force

http://www.whitehouse.gov/blog/

        http://en.wikipedia.org/wiki/Gini_coefficient

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