[Economic inequality undermines democracy, hastens environmental
destruction, fosters anxiety, and erodes social trust. We can start to
solve these problems by taxing the rich.]
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TAX THE RICH, BECAUSE INEQUALITY IS BAD FOR ALL OF US  
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John L. Hammond
March 14, 2023
Jacobin
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_ Economic inequality undermines democracy, hastens environmental
destruction, fosters anxiety, and erodes social trust. We can start to
solve these problems by taxing the rich. _

, Credit: Reuters

 

Inequality is hazardous to your physical and mental health, your
community life, and your budget. Wherever you are in the status
hierarchy — top, bottom, or middle — it takes its toll on you. And
while it is inevitable under capitalism, its effects can be
accentuated or mitigated by public policies.

One key policy mechanism to address inequality is taxing the rich. And
one place that would benefit from taxing the rich is New York. New
York City is the capital of the world financial system, and New York
State is the most unequal state
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the nation: 1 percent of households take home 31 percent
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all income in the state, whereas the top 1 percent of households
nationally capture 21 percent of all income. That is because the very
wealthy in the state are exceptionally wealthy. While the top 1
percent in the United States has an average annual income of $1.3
million, New York’s top 1 percent makes $2.2 million.

The Invest in Our New York (IONY) coalition — made up of New York
City Democratic Socialists of America (NYC-DSA), the Working Families
Party (WFP), New York Communities for Change, and local community and
political organizations across the state — is proposing to challenge
this obscene inequality by raising taxes on the superrich and
investing in housing, public transportation, education, and the
environment.

Taxing the rich would allow us to publicly fund these desperately
needed goods and services. But it has another benefit: it would chip
away at the corrosive effects of inequality in our lives. Such
inequality has massive impacts across our society, including in some
surprising areas you might assume have little to do with the rising
concentration of wealth. The effort to raise taxes on the wealthy in
New York will not erase these social problems, but it can address some
of inequality’s worst impacts.

Inequality Is Out of Control

Inequality has escalated out of control in the United States since the
1970s, as an increasing share of national income has gone to
corporations in the form of profits. The numbers are familiar to us by
this point but they bear repeating: CEO pay in the three hundred fifty
largest US corporations increased by 1,460 percent between 1978 and
2021, while the average worker’s pay grew during the same period by
only 18.1 percent. In 2021, the average CEO was paid 399 times
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much as the average worker (compared to 59.1 times as much in 1959).

The already rich are walking away with most of the gains of our
growing economy. In the boom following the financial crisis of
2007–8, the top 1 percent in New York State took 51.4 percent
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the income gains between 2009 and 2015, and the rise in the number of
billionaires since the pandemic shows that the trend has continued. At
the same time, many working people are not seeing their pay keep up
with inflation.

 

Meanwhile the tax structure has grown more regressive: Congress
reduced the top federal income tax bracket from 94 percent in 1945 to
35 percent in 2012; it stands at 37 percent today. The wealthy,
moreover, have access to a combination of legal, illegal, and
questionably legal dodges that make massive tax evasion possible. In
2021, the Treasury Department estimated that the top 1 percent of
taxpayers were underpaying
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more than $160 billion.

In the wake of Occupy Wall Street in 2011 and Bernie Sanders’s two
presidential campaigns, mainstream politicians have paid more
attention to inequality, including President Joe Biden. The budget
presented by the Biden administration to Congress in March calls for
significant increases in the corporate tax and in income and capital
gains taxes for wealthy taxpayers (though the proposal is unlikely to
survive the Republican-majority House of Representatives and the
narrowly Democratic-controlled Senate).

The Social Costs of Inequality

Inequality has corrosive effects in almost every area of social and
political life, even in societies where everyone enjoys relative
prosperity. Conversely, societies of relative equality enjoy many
advantages: greater political democracy, less crime, better public
health, and less stress and anxiety. These costs and benefits affect
the whole population, not only the worst off — rich people in more
equal societies reap these social gains too.

The benefits of greater equality derive from social cohesion. When
cooperation rather than competition prevails in a society, individuals
are more likely to believe that they owe solidarity to others and are
themselves entitled to solidarity. Mutual solidarity underlies
policies that both ameliorate social conditions and prevent
deterioration.

Inequality inhibits democracy by financing capitalists’ campaign
contributions, lobbying, and control of the media, giving them the
power to impose policies that favor their interests
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the expense of others. The Supreme Court’s 2013 Citizens United
decision allows corporations to make unlimited campaign contributions.
They can support lobbyists in Washington and in state capitals,
working day in and day out, maintaining continuous personal contacts,
providing information, incentives, and pressure to persuade
legislators and regulators to support their interests. Their think
tanks promote junk science, attack environmental regulation, and
hamstring responses to climate change.

Inequality also exacerbates social and public health problems: not
only are these greater in unequal societies, but they are greater in
every group within the socioeconomic status order in such societies.
In societies of greater inequality, social problems affect
people across the class spectrum
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heavily than in less unequal societies. High-income people in
societies of greater inequality are more likely to suffer problems
ranging from cardiovascular diseases to asthma to crime than
high-income people in more equal societies. The same goes for those of
medium income and, of course, for those of lower income.

More unequal societies rarely provide universal support mechanisms.
Private provision of basic necessities inevitably means that support
will be inadequate for the poorest and least-protected segments of the
population. This harms them, but it also harms everyone else, as the
COVID-19 pandemic showed clearly. Universal provision, as exists in
all the advanced countries of the world except the United States,
provides better care at lower cost
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our system.

Conspicuous consumption becomes more important to our standing in an
unequal society. But spending on goods purchased to symbolize superior
status can crowd out spending on goods that would enhance welfare.
Important among such underproduced “goods” is leisure. Workers in
more equal societies have shorter work hours, more holidays, and
longer vacations. The average worker in the United States works at
least 20 percent
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than workers in Germany or Sweden, for example.

Excessive consumption of goods used by the superrich and the nearly
superrich to display their wealth raises the cost of living for
everyone, because the price of high-end goods affects the costs of
midscale and cheaper goods. Consider real estate: the $150 million
price of condos on 57th Street in Manhattan cascades downward to the
rest of the market, raising the price of housing
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the moderately wealthy, the middle class, and the poor, and consigning
tens of thousands to living on the street.

Inequality in the real estate market intersects with inequality in
education. The irrational, decentralized financing of education in the
United States creates extreme variability in the perceived quality of
schools, which drives up
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real estate prices as families choose to live in communities with
schools that will put their kids on track to get into a university
that will in turn prepare them for a high-paying career. Again, the
high prices cascade their way down through the housing market, raising
prices for everyone.

 

Unequal societies also suffer greater environmental degradation.
Capitalism exploits the environment as it exploits workers; rapacious
resource extraction and planned obsolescence of goods to be discarded
as waste fatten profits that feed the hyperconsumption of the rich. On
a world scale, the consumption of the richest 10 percent of the
population is responsible for 50 percent of carbon emissions.
High-inequality areas, moreover, devote fewer resources to
environmental protection, because the rich resist taxation and can
choose locations or insulate themselves from harmful environmental
conditions.

While the excessive consumption of the rich makes them the worst
polluters
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far, mass consumption contributes too. The capitalist economy raises
demands for its products through fast fashion, product obsolescence,
and similar devices to promote consumption for its own sake.

Finally, people living in societies of relative equality are happier.
Released from the stresses of insecure access to basic needs (for
some) and status competition (for others), they can better enjoy life.
According to international surveys, the happiest countries
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the world are the five Scandinavian countries, which have among the
most equal distributions of wealth and income among industrial
nations.

We Need to Tax the Rich

The Tax the Rich campaign proposes to increase revenues by $20
billion. A corporate income tax increase was enacted in response to
IONY’s 2021 Tax the Rich campaign, raising the corporate tax from
6.5 percent to 7.25 percent for corporations making over $5 billion
per year and a smaller increase on the next tier of corporations. The
current campaign seeks to make that increase permanent.

A second revenue bill would equalize the tax rate on employment
earnings and capital gains. Presently, at both state and federal
levels, when an owner of a security sells it at a profit, the gain is
considered taxable income, but it is taxed at a lower rate than
earnings from labor. In other words, you pay lower taxes on the money
you make by sitting at home watching your assets grow than by actually
working. The IONY proposal would tax capital gains at the same rate as
other income.

The campaign is also about how the increased revenue should be spent.
Revenue sources are not legally designated for particular
expenditures. But Tax the Rich calls for increases in spending in a
number of specific areas. The Build Public Renewables Act, which would
enable the New York Power Authority to build renewable energy plants.
Spending on public transportation would fund freezing of Metropolitan
Transportation Authority (MTA) fares at $2.75, more frequent bus
service, and the phasing in of fare-free buses. On the housing front,
vouchers would provide rental subsidies for New Yorkers who are
homeless or at risk of homelessness, while the good cause eviction
rule would give renters the right to renew a lease and enable them to
fight unconscionable rent hikes.

These programs offer a balance among meeting the urgent needs of the
most desperate New Yorkers (the homeless), serving the interests of
middle- and working-class people whose budgets are squeezed by rising
prices (housing security for renters and the MTA fare freeze), and
keeping the planet healthy (public renewable power and the buildup of
public transportation).

Taxing the rich in New York will not magically transform the state
into a paradise of equality. IONY’s proposal would make only a small
dent in inequality and a small contribution to solving associated
problems. Though New York is the most unequal state in the United
States, achieving a more equal distribution would still leave vast
landscapes of inequality throughout the country. Tax reform at the
federal level, where the greatest tax burden falls, is needed to
seriously attack inequality.

A second limitation is that equalizing incomes through taxation merely
treats a symptom of the problem of inequality, rather than its source
in the capitalist system that determines and allocates rewards.
Fundamental change would require democratizing ownership and control
of the economy, rather than leaving decisions about investment,
production, and incomes to private, for-profit corporations.

Still, taxing the rich along the lines proposed by IONY would not only
begin the badly needed task of redistributing wealth, but it would
also educate the public about the need to reverse our current course
of mounting inequality. If we can enact this legislation, much of New
York might start to look very different.

_John L. Hammond teaches sociology at Hunter College and the CUNY
Graduate Center. He is the author of Building Popular Power:
Workers’ and Neighborhood Movements in the Portuguese Revolution
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to Learn: Popular Education and Guerrilla War in El Salvador
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* tax fairness
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* economic inequality
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* New York
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