Is Inequality a Problem?
What do I mean by a problem?
– Empirical component
– Moral component
Alms and Cox View?
Is Inequality a Problem?
Alms and Cox
– Income mobility
– Track individual incomes over years
– of the lowest 20% of income earners in 1979
• 86% move to higher group by 1988;
• 15% make it to top tier
• Quickest rise is among the young!
Is Inequality a Problem?
Alms and Cox- source of changes
– Shift from blue – white collar economy
– Increasing rewards to education & experience
Inequality is inevitable
Is Inequality a Problem?
Krugman
– Economic Globalization – bunk! McDs
Source of Inequality
– Values change• Idolatry of CEOs Jack Welch
– Decline of labor- 12% in unions
Consequences
– government for the comfortable
Who Governs?
 Dahl—”In political
system where nearly
every adult may vote, but
where knowledge, wealth,
social position, access to
officials, and other
resources are unequally
distributed, who actually
governs?”
2001 Bush Tax Cuts
36%
40%
28%
30%
20%
31%
15%
33%
25%
15%
10%
10%
0%
$0
$6,000
Pre-2001
$27,050
Bush Plan
$136,750
Bush Tax Cuts
Reductions in federal income tax rates
Increase child credits, higher limits on
Roth and Education IRAs, elimination of
Estate Tax
Total Cost $1.3 trillion 2001-2010
After 2010, $200 billion a year
Who Benefits 2001-2010
 top 1% will receive
– $477 billion
– $342,472 each
 bottom 60% will receive
– $268 billion
– $3,251 each
 Benefits for Top 1% are back-loaded
– get 7.3% of benefits in 2001
– But 51.8% of benefits in 2010
2003 Bush tax cuts
$318 billion
–
–
–
–
Tax breaks for married couples,
Increased child credit ($400)
Dividends and capital gains
Last minute revision
• families $10-26,000 not eligible for $400
% Reduction in Federal Tax Burden
Bottom 95%
Richest 4%
Richest 1%
0
5
10
15
20
% Reduction in Federal Tax Burden
25
30
Public’s Ignorance of Tax Policy
 Do you pay more in income or payroll taxes?
(60%+ get it wrong)
 Bush 2003 tax proposal on corporate dividends
– 61% didn’t know
 “Most families have to pay federal estate tax
when someone dies or only a few families have
to pay”
– 50% most families
– 18% don’t know
 40% said 2001 tax cut was something they
“haven’t though about”
Where do Taxes come from/go?
Federal Govt Receipts, CBO
Taxes as % of GNP
10
9.18.5
5.9
5
7
4.5
1.5
3.84.9
1.1
3.83.4
1.2
0
Individual
Income
Payroll
Corporate
Income
Other
1950
1970
1990
Puzzle of Public Support
Harris Poll, June 2003
American Public
– 42% said it would “help the rich a lot”
– 10% said it would “help themselves a lot”
– BUT 50% 2003 tax cut was a good thing
Conventional wisdom
American Ideology of Opportunity
Americans emphasize individual
responsibility
Care about opportunity, not inequality
82
90
80
70
60
50
40
30
20
10
0
81
65
64
61
44
43
Sw
it z
er
la
nd
Un
ite
d
St
at
es
lia
Au
st
ra
an
y
G
er
m
Br
it a
in
Ne
th
er
la
nd
s
a
Au
st
ri
Ita
ly
29
It is the responsibility of government to reduce the differences in income between
people with high incomes and those with low incomes (% who agree)
Percentage saying they agree with the statement:
"The way things are in my country, people like me
and my family have a good chance of improving our
standard of living."
72
61
37
36
Ne
th
er
la
nd
s
an
y
40
G
er
m
ly
Ita
lia
Au
st
ra
US
45
Br
it a
in
80
60
40
20
0
70
75
70
65
60
55
50
45
40
35
30
64
60
52
51
47
ng
do
m
Ki
a
Un
i
te
d
Au
st
ri
Sw
it z
er
la
nd
an
y
G
er
m
ly
Ne
th
er
la
nd
s
Ita
lia
Au
st
ra
at
es
41
St
te
d
Un
i
62
% who agree that taxes are much too high or too high
But…….
Is difference in incomes a …
60
50
40
30
20
10
0
43.2
49.8
7
Good thing
Bad thing
Haven't thought about
it
Big Question
Bartels-- Not unusual for citizens to be
ignorant about details of public policy.
Question is how do they deal with
uncertainty; what intellectual short cuts do
they use to develop those opinions?
What might explain individual’s
support for Bush tax cuts?
1. Conservative ideology
2. GOP identification
3. rich tax burden too high or low
4. poor tax burden too high or low
5. own tax burden too high or low
“unenlightened considerations of self interest”
Hacker and Peirson
Did Americans support the Bush tax plan?
"Do you favor or oppose Bush tax cut
plan?"
100%
50%
0%
56%
Support
33%
Oppose
11%
Don't Know
Average share of respondents
18
21
16
ABC/Washington
Post
Pew
NBC/Wall Street
Journal
74
77
21
19
41
36
14
65
18
25
32
Educ/Health Care
LA Times
37
36
24
CNN/Time
32
20
25
Fox News
18
Bloomberg News
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Medicare
Other governmental
programs
Debt Reduction
Defense/Domestic
Programs
Social Security
Tax Cut
Which do you prefer..
80%
60%
40%
20%
0%
73%
20%
"would reduce federal income "take full effect this year, and
taxes across the board and
whould be aimed more att
give the larges share of this tax middle income Americans and
cut to wealtherier Americans
involve either credits or
who currently pay the most in reductions in the payroll taxes
Support
80
70
60
50
40
30
20
10
0
70
24
"Rich get a bigger tax cut
because they pay more in
taxes"
"Everyone should get the
same level of tax cut"
Treasury Department Memo
“The public prefers spending on things like
health care, and education over cutting
taxes. It’s crucial that you make clear that
there are no tradeoffs here. Roll-out events
like this are the clearest examples of when
staying on message is absolutely crucial.”
Why did Congress support the Bush
Administration’s tax cut plans despite tepid
public support?
Why didn’t they fear electoral retribution?
The President's Agenda for Tax
Relief

"These are the basic ideas that guide my
tax policy: lower income taxes for all, with the
greatest help for those most in need. Everyone
who pays income taxes benefits — while the
highest percentage tax cuts go to the lowest
income Americans. I believe this is a formula
for continuing the prosperity we've enjoyed,
but also expanding it in ways we have yet to
discover. It is an economics of inclusion. It is
the agenda of a government that knows its
limits and shows its heart."
 — President George W. Bush
Design of Tax Cuts-
Hacker and Peirson, Abandoning the Middle, p. 45
Create Political Demand for More Tax Cuts
Hacker and Peirson, Abandoning the Middle, p. 46
Time-bombs
Sunsets
Throw Momma from the Train
Implications for Social Security
Reform
 Bartels—voters have very limited cognitive
ability to process complicated issues
– “Social Security is in crisis”
– Demographic imbalance
– Young people are going to get social security
 Policy elites are able to frame the discussion and
design the policy in such a way that obscure the
distributional consequences of policy
Jefferson on Citizenship
 "I know of no safe
depository of the ultimate
powers of the society but
the people themselves,
and if we think them not
enlightened enough to
exercise their control with
a wholesome discretion,
the remedy is not to take
it from them, but to
inform their discretion by
education."